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**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

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**Form 10-Q**

 
| **x**                                                  | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**  |
|--------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
|                                                   |       |
| **For the  quarterly period ended June 30, 2008** |
|                                                   |       |
| **OR**                                                 |
|                                                   |       |
| **o**                                                  | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |

 

**For the transition period from           to**

 

**Commission File Number 0-191551**

 

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**Atlantic Tele-Network, Inc.**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                                     | ** ** | **47-0728886**                            |
|------------------------------------------------------------------|------------|-------------------------------------------|
| (State or  other jurisdiction of  incorporation or organization) |       | (I.R.S.  Employer  Identification Number) |

 

**10 Derby Square**

**Salem, MA 01970**

**(978) 619-1300**

** **

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Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes x No o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See definitions of “large accelerated filer,” “accelerated filer,” and“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Checkone):

 

| Large  accelerated filer o                     |   | Accelerated  filer x         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                       |   | Smaller  reporting company o |
| (Do  not check if a smaller reporting company) |   |                              |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act): Yes o No x

 

As of August 8,2008, the registrant had outstanding 15,201,110 shares of its common stock($.01 par value).

 

 

 

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**ATLANTIC TELE-NETWORK, INC.**

 

FORM 10-QQuarter Ended June 30, 2008

 
| CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS |                                                                                                            |
|-----------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------|
|                                                      |                                                                                                            |   |
| PART I—FINANCIAL INFORMATION                    |                                                                                                            |
|                                                      |                                                                                                            |   |
| Item 1                                               | Unaudited Condensed Consolidated Financial  Statements                                                          |   |
|                                                      |                                                                                                            |   |
|                                                      | Condensed Consolidated Balance Sheets at  December 31, 2007 and June 30, 2008                         | 4 |
|                                                      |                                                                                                            |   |
|                                                      | Condensed Consolidated Statements of  Operations for the three and six months ended June 30, 2007 and 2008 | 5 |
|                                                      |                                                                                                            |   |
|                                                      | Condensed Consolidated Statements of Cash  Flows for the six months ended June 30, 2007 and 2008           | 6 |
|                                                      |                                                                                                            |   |
|                                                      | Notes to Unaudited Condensed Consolidated  Financial Statements                                                 | 7-16 |
|                                                      |                                                                                                            |   |
| Item 2                                                    | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                     | 16-28 |
|                                                      |                                                                                                            |   |
| Item 3                                                    | Quantitative and Qualitative Disclosures  About Market Risk                                                     | 28 |
|                                                      |                                                                                                            |   |
| Item 4                                                    | Controls and Procedures                                                                                         | 29 |
|                                                      |                                                                                                            |   |
| PART II—OTHER INFORMATION                       |                                                                                                            |
|                                                      |                                                                                                            |   |
| Item 1                                                    | Legal Proceedings                                                                                               | 29 |
|                                                      |                                                                                                            |   |
| Item1A                                                    | Risk Factors                                                                                                    | 29 |
|                                                      |                                                                                                            |   |
| Item 2                                                    | Unregistered Sales of Equity Securities and  Use of Proceeds                                                    | 29 |
|                                                      |                                                                                                            |   |
| Item 4                                                    | Submission of Matters to a Vote of Security  Holders                                                            | 29 |
|                                                      |                                                                                                            |   |
| Item 6                                                    | Exhibits                                                                                                        | 30 |
|                                                      |                                                                                                            |   |
| SIGNATURES                                                |                                                                                                            |   |
|                                                      |                                                                                                            |   |
| CERTIFICATIONS                                            |                                                                                                            |   |
|                                                           |                                                                                                                 |  |  |

 

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**Cautionary Statement Regarding Forward-LookingStatements**

 

ThisQuarterly Report on Form 10-Q (or the “Report”) contains forward-lookingstatements relating to, among other matters, the future financial performanceand results of operations of ATN and its subsidiaries, including the relativecontributions of Commnet, Sovernet and BDC; the competitive environment in ourkey markets,  demand for our services andindustry trends; the outcome of litigation and regulatory matters; ourcontinued access to the credit and capital markets; the pace of our networkexpansion and improvement, including our realization of the benefits of theseinvestments; and management’s plans and strategy for the future.  These forward-looking statements are based onestimates, projections, beliefs, and assumptions and are not guarantees offuture events or results.  Actual futureevents and results could differ materially from the events and resultsindicated in these statements as a result of many factors, including, amongothers, (1) significant political and regulatory risk facing our exclusivelicense to provide domestic local exchange and international long distancetelephone services in Guyana; (2) any significant decline in the price orvolume of international long distance calls to Guyana; (3) increasedcompetition affecting our businesses; (4) the regulation of rates thatGT&T may charge for local wireline telephone service; (5) significanttax disputes between GT&T and the Guyanese tax authorities; (6) thederivation of a significant portion of our U.S. wireless revenue from a smallnumber of customers;  (7) ourability to maintain favorable roaming arrangements; (8) economic,political and other risks facing our foreign operations; (9) regulatorychanges affecting our businesses; (10) rapid and significant technologicalchanges in the telecommunications industry; (11) our reliance on a limitednumber of key suppliers and vendors for timely supply of equipment and servicesrelating to our network infrastructure; (12) any loss of key members ofmanagement; (13) the adequacy and expansion capabilities of our networkcapacity and customer service system to support our customer growth; (14)dependence of our wireless and wireline revenues on the reliability andperformance of our network infrastructure; (15) the occurrence of severeweather and natural catastrophes; and (16) our ability to realize the valuethat we believe exists in businesses that we acquire. These and otheradditional factors that may cause actual future events and results to differmaterially from the events and results indicated in the  forward-looking statements above are setforth more fully under Item 1A “Risk Factors” of our Annual Report on Form 10-Kfor the  year ended December 31,2007 (the “2007 Form 10-K”), which is on file with the SEC.  We undertake no obligation to update theseforward-looking statements to reflect actual results, changes in assumptions orchanges in other factors that may affect such forward-looking statements.

 

In this Reportthe words “we,” “our,” “ours” and “us” refer to Atlantic Tele-Network, Inc.and its subsidiaries, unless the context indicates otherwise. ClearChoiceTM is aservice mark of one of our subsidiaries. This Report also contains othertrademarks, service marks and trade names that are the property of others.

 

Reference todollars ($) refer to U.S. dollars unless otherwise specifically indicated.

 

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**PART I—FINANCIALINFORMATION**

**Item 1.  Unaudited Condensed Consolidated FinancialStatements**

 

**ATLANTICTELE-NETWORK, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

**(Dollarsin thousands, except per share amounts)**

 
| ** **                                                                                                                                                                                     | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                                                                                                                                                                                     | ** ** | **2007**              | ** ** | **2008**          | ** ** |
| **ASSETS**                                                                                                                                                                                     |       |                  |       |              |       |
| Current Assets:                                                                                                                                                                                |       |                  |       |              |       |
| Cash and cash equivalents                                                                                                                                                                      |       | $                     | 71,173     |              | $          | 55,053 |   |
| Restricted cash                                                                                                                                                                                |       | 4,831                 |       | —            |       |
| Marketable securities                                                                                                                                                                          |       | 5,280                 |       | 5,400             |       |
| Accounts receivable, net of allowances                                                                                                                                                         |       | 27,357                |       | 31,135            |       |
| Materials and supplies                                                                                                                                                                         |       | 4,747                 |       | 7,446             |       |
| Prepayments and other current assets                                                                                                                                                           |       | 4,987                 |       | 4,304             |       |
| Total current assets                                                                                                                                                                           |       | 118,375               |       | 103,338           |       |
| Fixed Assets:                                                                                                                                                                                  |       |                  |       |              |       |
| Property, plant, and equipment                                                                                                                                                                 |       | 277,181               |       | 300,394           |       |
| Less accumulated depreciation                                                                                                                                                                  |       | (121,428              | )          | (126,642          | )          |
| Net fixed assets                                                                                                                                                                               |       | 155,753               |       | 173,752           |       |
| Licenses                                                                                                                                                                                       |       | 14,738                |       | 24,344            |       |
| Goodwill                                                                                                                                                                                       |       | 39,344                |       | 40,277            |       |
| Other intangibles, net                                                                                                                                                                         |       | 2,349                 |       | 2,658             |       |
| Investment in and advances to  unconsolidated affiliates                                                                                                                                       |       | 12,453                |       | 60                |       |
| Other assets                                                                                                                                                                                   |       | 1,614                 |       | 5,816             |       |
| Total assets                                                                                                                                                                                   |       | $                     | 344,626    |              | $          | 350,245 |   |
| **LIABILITIES,  MINORITY INTERESTS AND STOCKHOLDERS’ EQUITY**                                                                                                                             |       |                  |       |              |       |
| Current Liabilities:                                                                                                                                                                           |       |                  |       |              |       |
| Accounts payable and accrued liabilities                                                                                                                                                       |       | $                     | 25,618     |              | $          | 23,036 |   |
| Dividends payable                                                                                                                                                                              |       | 2,461                 |       | 2,465             |       |
| Accrued taxes                                                                                                                                                                                  |       | 11,029                |       | 1,706             |       |
| Advance payments and deposits                                                                                                                                                                  |       | 3,912                 |       | 3,709             |       |
| Other current liabilities                                                                                                                                                                      |       | 1,859                 |       | 3,301             |       |
| Total current liabilities                                                                                                                                                                      |       | 44,879                |       | 34,217            |       |
| Deferred income taxes                                                                                                                                                                          |       | 13,082                |       | 14,077            |       |
| Other liabilities                                                                                                                                                                              |       | 458                   |       | 458               |       |
| Long-term debt, excluding current portion                                                                                                                                                      |       | 50,000                |       | 50,000            |       |
| Total liabilities                                                                                                                                                                              |       | 108,419               |       | 98,752            |       |
| Minority interests                                                                                                                                                                             |       | 27,236                |       | 29,527            |       |
| Commitments and contingencies (Note 12)                                                                                                                                                        |       |                  |       |              |       |
| Stockholders’ Equity:                                                                                                                                                                     |       |                  |       |              |       |
| Preferred stock, $0.01 par value per share;  10,000,000 shares authorized, none issued and outstanding                                                                                         |       | —                |       | —            |       |
| Common stock, $0.01 par value per share;  50,000,000 shares authorized; 15,675,518 and 15,697,557 shares issued,  respectively, and 15,220,546 and 15,201,110 shares outstanding, respectively |       | 157                   |       | 157               |       |
| Treasury stock, at cost; 454,972 and  496,447 shares, respectively                                                                                                                             |       | (3,403                | )          | (4,560            | )          |
| Additional paid-in capital                                                                                                                                                                     |       | 106,038               |       | 106,990           |       |
| Retained earnings                                                                                                                                                                              |       | 108,414               |       | 121,614           |       |
| Accumulated other comprehensive loss                                                                                                                                                           |       | (2,235                | )          | (2,235            | )          |
| Total stockholders’ equity                                                                                                                                                                |       | 208,971               |       | 221,966           |       |
| Total liabilities, minority interests and  stockholders’ equity                                                                                                                           |       | $                     | 344,626    |              | $          | 350,245 |   |

 

The accompanyingcondensed notes are an integral part of these condensed consolidatedfinancial statements.

 

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**ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 and2008**

**(Unaudited)**

**(Dollars in thousands, except per share amounts)**

 
| ** **                                                                                                                                                                     | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                                                                                                     | ** ** | **2007**                                        | ** ** | **2008**                                      | ** ** | **2007** | ** ** | **2008** | ** ** |
| **REVENUE:**                                                                                                                                                                   | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Wireless                                                                                                                                                                       |       | $                                               | 19,884     |                                          | $          | 24,786 |   | $ | 38,587 |   | $ | 44,539 |   |
| Local telephone and data                                                                                                                                                       |       | 11,439                                          |       | 12,267                                        |       | 22,506 |   | 24,514 |   |
| International long distance                                                                                                                                                    |       | 12,802                                          |       | 12,387                                        |       | 25,974 |   | 24,942 |   |
| Other                                                                                                                                                                          |       | 1,032                                           |       | 974                                           |       | 2,010 |   | 2,049 |   |
| Total revenues                                                                                                                                                                 |       | 45,157                                          |       | 50,414                                        |       | 89,077 |   | 96,044 |   |
| **OPERATING EXPENSES**(excluding  depreciation and amortization unless otherwise indicated):                                                                                   | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Termination and access fees                                                                                                                                                    |       | 7,696                                           |       | 8,376                                         |       | 14,255 |   | 15,964 |   |
| Internet and programming                                                                                                                                                       |       | 817                                             |       | 863                                           |       | 1,666 |   | 1,762 |   |
| Engineering and operations                                                                                                                                                     |       | 5,709                                           |       | 5,930                                         |       | 11,473 |   | 11,785 |   |
| Sales and marketing                                                                                                                                                            |       | 3,641                                           |       | 2,944                                         |       | 8,738 |   | 5,618 |   |
| General and administrative                                                                                                                                                     |       | 5,639                                           |       | 6,819                                         |       | 11,489 |   | 12,702 |   |
| Depreciation and amortization                                                                                                                                                  |       | 6,658                                           |       | 7,424                                         |       | 13,159 |   | 14,501 |   |
| Gain on disposition of long-lived assets                                                                                                                                       |       | (1,043                                          | )          | —                                        |       | (1,176 | ) | — |   |
| Total operating expenses                                                                                                                                                       |       | 29,117                                          |       | 32,356                                        |       | 59,604 |   | 62,332 |   |
| Income from operations                                                                                                                                                         |       | 16,040                                          |       | 18,058                                        |       | 29,473 |   | 33,712 |   |
| **OTHER INCOME (EXPENSE):**                                                                                                                                                    | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest expense                                                                                                                                                               |       | (661                                            | )          | (664                                          | )          | (883 | ) | (1,316 | ) |
| Interest income                                                                                                                                                                |       | 517                                             |       | 410                                           |       | 1,108 |   | 978 |   |
| Other income, net                                                                                                                                                              |       | 1,514                                           |       | 143                                           |       | 1,768 |   | 368 |   |
| Other income (expense), net                                                                                                                                                    |       | 1,370                                           |       | (111                                          | )          | 1,993 |   | 30 |   |
| **INCOME BEFORE INCOME TAXES, MINORITY  INTERESTS AND EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES**                                                                        |       | 17,410                                          |       | 17,947                                        |       | 31,466 |   | 33,742 |   |
| Income taxes                                                                                                                                                                   |       | 7,250                                           |       | 6,642                                         |       | 13,914 |   | 14,032 |   |
| **INCOME BEFORE MINORITY INTERESTS AND EQUITY  IN EARNINGS OF UNCONSOLIDATED AFFILIATES**                                                                                      |       | 10,160                                          |       | 11,305                                        |       | 17,552 |   | 19,710 |   |
| Minority interests, net of tax of $0.9  million for the three months ended June 30, 2007 and 2008, and $1.8  million for the six months ended June 30, 2007 and 2008 |       | (1,753                                          | )          | (1,373                                        | )          | (2,703 | ) | (2,374 | ) |
| Equity in earnings of unconsolidated  affiliates                                                                                                                               |       | 642                                             |       | 272                                           |       | 1,098 |   | 735 |   |
| **NET INCOME**                                                                                                                                                                 |       | $                                               | 9,049      |                                          | $          | 10,204 |   | $ | 15,947 |   | $ | 18,071 |   |
| **NET INCOME PER SHARE:**                                                                                                                                                      | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                                                                                                                                                          |       | $                                               | 0.60       |                                          | $          | 0.67 |   | $ | 1.05 |   | $ | 1.19 |   |
| Diluted                                                                                                                                                                        |       | $                                               | 0.59       |                                          | $          | 0.67 |   | $ | 1.04 |   | $ | 1.18 |   |
| **WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:**                                                                                                                                | ** ** | ** **                                      | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                                                                                                                                                          |       | 15,161                                          |       | 15,187                                        |       | 15,156 |   | 15,192 |   |
| Diluted                                                                                                                                                                        |       | 15,286                                          |       | 15,253                                        |       | 15,288 |   | 15,267 |   |
| **DIVIDENDS PER SHARE APPLICABLE TO COMMON  STOCK**                                                                                                                            |       | $                                               | 0.14       |                                          | $          | 0.16 |   | $ | 0.28 |   | $ | 0.32 |   |

 

The accompanyingcondensed notes are an integral part of these condensed consolidatedfinancial statements.

 

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**ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2008**

**(Unaudited)**

**(Dollars in thousands)**

 
| ** **                                                                                             | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                             | ** ** | **2007**                                      | ** ** | **2008** | ** ** |
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                                              | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Net income                                                                                             |       | $                                             | 15,947     |   | $ | 18,071 |   |
| Adjustments to reconcile net income to net  cash flows provided by operating activities:               |       |                                          |       |   |   |
| Depreciation and amortization                                                                          |       | 13,159                                        |       | 14,501 |   |
| Gain on sale of investments in  unconsolidated affiliates                                              |       | (133                                          | )          | — |   |
| Gain on sale of Commnet Wireless related  assets                                                       |       | (1,043                                        | )          | — |   |
| Amortization of stock-based compensation                                                               |       | 418                                           |       | 549 |   |
| Deferred income taxes                                                                                  |       | 461                                           |       | 400 |   |
| Minority interests                                                                                     |       | 2,703                                         |       | 2,374 |   |
| Equity in earnings of unconsolidated  affiliates                                                       |       | (1,098                                        | )          | (735 | ) |
| Dividends received from Bermuda Digital  Communications, Ltd.                                          |       | 968                                           |       | 1,106 |   |
| Changes in operating assets and  liabilities, excluding the effects of acquisitions:                   |       |                                          |       |   |   |
| Accounts receivable, net                                                                               |       | (3,431                                        | )          | (1,513 | ) |
| Materials and supplies, prepayments, and  other current assets                                         |       | 2,177                                         |       | (52 | ) |
| Other assets                                                                                           |       | (648                                          | )          | (4,846 | ) |
| Accounts payable and accrued liabilities,  advance payments and deposits and other current liabilities |       | (2,844                                        | )          | (1,787 | ) |
| Accrued taxes                                                                                          |       | 1,895                                         |       | (8,728 | ) |
| Net cash provided by operating activities                                                              |       | 28,531                                        |       | 19,340 |   |
| **CASH FLOWS FROM INVESTING ACTIVITIES:**                                                              | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Capital expenditures                                                                                   |       | (18,339                                       | )          | (20,900 | ) |
| Acquisitions of businesses, net of cash  acquired of $1,687 and $5,154, respectively                   |       | (6,553                                        | )          | (11,924 | ) |
| Decrease in restricted cash                                                                            |       | —                                        |       | 4,831 |   |
| Purchase of short-term marketable  securities                                                          |       | —                                        |       | (120 | ) |
| Proceeds from sale of investments in  unconsolidated affiliates                                        |       | 276                                           |       | — |   |
| Proceeds from sale of Commnet Wireless  related assets                                                 |       | 1,507                                         |       | — |   |
| Net cash used in investing activities                                                                  |       | (23,109                                       | )          | (28,113 | ) |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                                              | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Dividends paid on common stock                                                                         |       | (4,250                                        | )          | (4,867 | ) |
| Distributions to minority shareholders                                                                 |       | (823                                          | )          | (1,620 | ) |
| Proceeds from stock option exercises                                                                   |       | 59                                            |       | 304 |   |
| Purchase of common stock                                                                               |       | —                                        |       | (1,164 | ) |
| Net cash used in financing activities                                                                  |       | (5,014                                        | )          | (7,347 | ) |
| **NET CHANGE IN CASH AND CASH EQUIVALENTS**                                                            |       | 408                                           |       | (16,120 | ) |
| **CASH AND CASH EQUIVALENTS, beginning of the  period**                                                |       | 60,543                                        |       | 71,173 |   |
| **CASH AND CASH EQUIVALENTS, end of the  period**                                                      |       | $                                             | 60,951     |   | $ | 55,053 |   |

 

The accompanyingcondensed notes are an integral part of these condensed consolidatedfinancial statements.

 

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**ATLANTICTELE-NETWORK, INC. AND SUBSIDIARIES**

**NOTES TOUNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**1. ORGANIZATION AND BUSINESS OPERATIONS**

 

Atlantic Tele-Network, Inc. (“ATN” or “Company”)provides wireless and wireline telecommunication services in the Caribbean andNorth America through the following operating subsidiaries and affiliates:

 

·                    Guyana Telephone &Telegraph Company, Ltd. (“GT&T”), the national and internationaltelephone company in the Republic of Guyana and the largest wireless serviceprovider in that country. The Company has owned 80% of the stock of GT&Tsince January 1991.

 

·                     CommnetWireless, LLC (“Commnet”), an owner and operator of wholesale wireless networksin rural areas of the United States. Commnet provides wireless voice and datacommunications roaming services primarily to national, regional and localwireless carriers. We acquired 95% of the equity of Commnet in September 2005and the remaining 5% in January 2007.

 

·                    Bermuda DigitalCommunications, Ltd. (“BDC”), the largest wireless voice and datacommunications service provider in Bermuda, doing business under the name“Cellular One”. The Company acquired an equity interest in, and signed amanagement contract with, BDC in 1998. On May 15, 2008, BDC completed a share repurchase of its commonstock.  ATN did not tender any shares forrepurchase, and, as a result of the transaction, increased its holdings fromapproximately 43% to approximately 58% of BDC’s outstanding common stock.  Prior to this increase in holdings, theCompany accounted for its investment in BDC under the equity method andearnings from BDC did not appear in its income from operations, but wereinstead reflected in equity in earnings of unconsolidated affiliates.  Effective with the completion of that sharerepurchase, the Company began consolidating BDC’s results of operations.

 

·                    Sovernet, Inc., (“Sovernet”),a facilities-based integrated voice, broadband data communications and dial-upservice provider in New England, primarily in Vermont. The Company has owned96% of Sovernet since its acquisition in 2006.

 

·                    Choice Communications, LLC (“ChoiceCommunications” or “Choice”), is a leading provider of fixed wireless broadbanddata, wireless digital television services and dial-up internet services toretail and business customers in the U.S. Virgin Islands. Choice is a whollyowned subsidiary of the Company.

 

ATN provides management, technical, financial,regulatory and marketing services for its subsidiaries and affiliates andtypically receives a management fee equal to approximately 4% to 6% of theirrespective revenues. Management fees from consolidated subsidiaries areeliminated in consolidation. Management fees from unconsolidated affiliates areincluded in “Other Income” in the accompanying statements of operations.

 

**2. BASIS OF PRESENTATION**

 

The accompanying condensed consolidated financialstatements have been prepared by the Company pursuant to the rules andregulations of the Securities and Exchange Commission (“SEC”). The financialinformation included herein is unaudited; however, the Company believes suchinformation and the disclosures herein are adequate to make the informationpresented not misleading and reflect all adjustments (consisting only of normalrecurring adjustments) that are necessary for a fair statement of the Company’sfinancial position and results of operations for such periods. The year-endcondensed balance sheet data was derived from audited financial statements, butdoes not include all disclosures required by accounting principles generallyaccepted in the United States of America. Results of interim periods may not be indicative of results for thefull year.  These condensed consolidatedfinancial statements and related notes should be read in conjunction with theCompany’s 2007 Annual Report on Form 10-K.

 

*Consolidation*

 

The consolidated financial statements include theaccounts of the Company, its majority-owned subsidiaries and Commnet ofFlorida, LLC, which is consolidated in accordance with the provisions ofFinancial Accounting Standards Board (“FASB”) Interpretation No. 46, *Consolidation of Variable Interest Entities, an interpretation onAccounting Research Bulletin No. 51* as revised in December 2003since it was determined that the Company is the primary beneficiary of Commnetof Florida, LLC.

 

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Except for the Company’s investment in Commnet ofFlorida, LLC, the equity method of accounting is used for the Company’sinvestments in affiliated entities in which the Company has at least a 20%ownership but does not have management control. The Company accounts forinvestments of less than 20% for which the Company does not have the ability toexert significant influence over the operations by using the cost method of accounting.

 

*Recent Accounting Pronouncements*

 

Effective January 1, 2008, weimplemented Statement of Financial Accounting Standard No. 157, *Fair Value Measurement* (“SFAS 157”),for our financial assets and liabilities that are re-measured and reported at fairvalue at each reporting period, and non-financial assets and liabilities thatare re-measured and reported at fair value at least annually. In accordancewith the provisions of FASB staff position No. FAS 157-2, *Effective Date of FASB Statement No. 157,*wehave elected to defer implementation of SFAS 157 as it relates to all ofour non-financial assets and non-financial liabilities that are recognized anddisclosed at fair value in the financial statements on a nonrecurring basisuntil January 1, 2009. We are evaluating the impact, if any, this standardwill have on our non-financial assets and liabilities. The adoption ofSFAS 157 to our financial assets and liabilities and non-financial assetsand liabilities that are re-measured and reported at fair value at leastannually did not have a material impact on our financial results.

 

Effective January 1, 2008, we adopted SFAS No. 159, *The Fair Value Option for Financial Assets and Financial Liabilities*(“SFAS 159”). SFAS 159 permits entities to choose to measure certain financialinstruments and other eligible items at fair value when the items are nototherwise currently required to be measured at fair value. Upon adoption, wedid not elect the fair value option for any new items within the scope of SFAS 159and, therefore, the adoption of SFAS 159 did not have an impact on ourconsolidated financial statements.

 

In June 2008, the FASB issued FASB Staff Position (FSP) No. EITF03-6-1, *Determining Whether Instruments Granted inShare-Based Payment Transactions Are Participating Securities* (“FSP No. EITF03-6-1”). Under the provisions of this standard, unvested awards of share-basedpayments with non-forfeitable rights to receive dividends or dividendequivalents are considered participating securities for purposes of calculatingearnings per share. FSP No. EITF 03-6-1 is effective for financialstatements issued for fiscal years and interim periods beginning after December 15,2008. As the Company’s unvested awards of share-based payments’ rights toreceive dividends or dividend equivalents are forfeitable, the Company does notexpect the adoption of FSP No. EITF 03-6-1 to have a material impact onits consolidated financial statements.

 

InMay 2008, the FASB issued FAS No. 162, *The Hierarchy of Generally Accepted Accounting Principles*(“SFAS 162”). SFAS No. 162identifies the sources of accounting principles and the framework for selectingthe principles used in the preparation of financial statements ofnongovernmental entities that are presented in conformity with generallyaccepted accounting principles (the GAAP hierarchy). SFAS No. 162 willbecome effective 60 days following the SEC’s approval of the PublicCompany Accounting Oversight Board amendments to AU Section 411, *The Meaning of Present Fairly in Conformity WithGenerally Accepted Accounting Principles*. The Company does notexpect the adoption of SFAS No. 162 to have a material effect on itsresults of operations and financial position.

 

InApril 2008, the FASB issued FSP No. 142-3, *Determination of the Useful Life of Intangible Assets*(“FSP 142-3”), which amends thefactors that must be considered in developing renewal or extension assumptionsused to determine the useful life over which to amortize the cost of arecognized intangible asset under SFAS 142. FSP 142-3 amends paragraph 11(d) ofSFAS 142 to require an entity to consider its own assumptions about renewal orextension of the term of the arrangement, consistent with its expected use ofthe asset.

 

TheFSP also requires the following incremental disclosures for renewableintangible assets:

 
|   | · | The  weighted-average period prior to the next renewal or extension (whether  explicit and implicit) for each major intangible asset class |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                       |
|   | · | The  entity’s accounting policy for the treatment of costs incurred to renew or  extend the term of a recognized intangible asset     |
|   |   |                                                                                                                                       |
|   | · | For  intangible asset renewed or extended during the period:                                                                               |
|   |   |                                                                                                                                       |
|   |   |  ·                                                                                                                               | For  entities that capitalize renewal or extension costs, the costs incurred to  review or extend the asset, for each major intangible asset class |
|   |   |                                                                                                                                       |   |
|   |   |  ·                                                                                                                               | The  weighted-average period prior to the next renewal or extension (whether  explicit and implicit) for each major intangible asset class. |

 

FSP142-3 is effective for financial statements for fiscal years beginning after December 15,2008. The guidance for determining the useful life of a recognized intangibleasset must be applied prospectively to intangible assets acquired after theeffective date. Early adoption is prohibited. Accordingly, FSP 142-3 would notserve as a basis to change the useful life of an intangible asset that wasacquired prior to the effective date (January 1, 2009 for a calendar yearcompany). However, the incremental disclosure requirements described 

 

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abovewould apply to all intangible assets, including those recognized in periodsprior to the effective date of FSP 142-3. The Company is currently evaluatingthe impact that the adoption of FSP 142-3 will have on its consolidatedfinancial statements.

 

In March 2008, the FASB issued SFAS No. 161, *Disclosures about Derivative Instruments and Hedging Activities - anamendment of FASB Statement No. 133* (“SFAS 161”).  SFAS161 amends and expands the disclosure requirements of Statement 133 to providea better understanding of how and why an entity uses derivative instruments,how derivative instruments and related hedged items are accounted for, andtheir effect on an entity’s financial position, financial performance, and cashflows.  SFAS 161 is effective for fiscal years beginning after November 15,2008.  As of June 30, 2008, we didnot have any derivative instruments and do not expect that the adoption of SFAS161 will have any impact on our consolidated financial statements.

 

In December 2007, the FASB issued SFAS No. 141 (revised2007), *Business Combinations* (“SFAS 141R”).SFAS 141R addresses the recognition and accounting for identifiable assetsacquired, liabilities assumed, and noncontrolling interests in businesscombinations. SFAS 141R also establishes expanded disclosure requirements forbusiness combinations. SFAS 141R is effective for us on January 1, 2009,and we will apply SFAS 141R prospectively to all business combinationssubsequent to the effective date.  We arecurrently evaluating the impact that the adoption of SFAS 141R will have on ourconsolidated financial statements.

 

In December 2007, the FASB issued SFAS No. 160, *Noncontrolling Interests in Consolidated Financial Statements - anamendment of ARB No. 51* (“SFAS 160”). SFAS 160 establishesaccounting and reporting standards for the noncontrolling interest in asubsidiary and for the deconsolidation of a  subsidiary.  SFAS 160 requires thatnoncontrolling interests in subsidiaries be reported in the equity section ofthe controlling company’s balance sheet. It also changes the manner in whichthe net income of the subsidiary is reported and disclosed in the controllingcompany’s income statement. SFAS 160 is effective for fiscal years beginningafter December 15, 2008. We are currently evaluating the impact that theadoption of SFAS 160 will have on our consolidated financial statements.

 

*Reclassifications*

 

Certain reclassifications have been made to the 2007statement of operations to conform to the 2008 presentation.  For the three months ended June 30,2008, such reclassifications included an increase to 2007 wireless revenue of$0.8 million; a decrease to 2007 local telephone and data revenue of $0.3million; an increase to 2007 international long distance revenue of $0.5million and an increase to 2007 termination and access fees expense of $0.9million.  For the six months ended June 30,2008, such reclassifications included an increase to 2007 wireless revenue of$1.3 million; a decrease to 2007 local telephone and data revenue of $0.7million; an increase to 2007 international long distance revenue of $0.7million and an increase to 2007 termination and access fees expense of $1.3million.

 

**3. USE OF ESTIMATES**

 

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the dates of the financial statements and the reported amountsof revenues and expenses during the reporting periods. The most significantestimates relate to revenue recognition, allowance for doubtful accounts,useful lives of the Company’s fixed and finite-lived intangible assets,allocation of purchase price to assets acquired and liabilities assumed inpurchase business combinations, fair value of indefinite-live intangibleassets, goodwill and income taxes. Actual results could differ significantlyfrom those estimates.

 

**4. ACQUISITIONS**

 

OnMay 15, 2008, the Company’s equity interest in BDC increased from 43% to58% as a result of BDC’s repurchase of $17.0 million of shares from othershareholders.  Prior to this increase in equity interest, the Companyaccounted for its investment in BDC under the equity method and earnings fromBDC did not appear in its income from operations, but were instead reflected inequity in earnings of unconsolidated affiliates.  The Company beganconsolidating BDC’s results of operations from May 16, 2008, the date thatwe obtained control of BDC.

 

The transaction was accounted for using the purchasemethod and the $17.0 million of consideration, which was funded by a loan fromthe Company from its cash on hand, was allocated to the Company’s share of theassets acquired and liabilities assumed at their estimated fair values as of May 15,2008**.**The Company is in theprocess of completing a third-party valuation of certain acquired tangible andintangible assets; thus, the allocation of the purchase price is preliminary.Included in the preliminary allocation was $9.4 million of licenses, $0.7million attributable to BDC’s relationships with its existing customers as ofthe date of acquisition and $6.0 million allocable to other acquired assets andliabilities at fair value. The excess of the purchase price over the amountsallocated to assets acquired and 

 

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liabilities assumed of $0.9 million has been recordedas goodwill. The value of the goodwill from this acquisition can be attributedto a number of business factors including, but not limited to the reputation ofBDC as a retail provider of wireless services as well as a network operator,BDC’s reputation for customer care, the skills and experience of its managementand staff and the strategic position it holds in its marketplace.  Inaccordance with current accounting standards, the goodwill and licenses willnot be amortized and will be tested for impairment at least annually asrequired by SFAS No. 142, “Goodwill and Other Intangible Assets”. The customerrelationships will be amortized, on an accelerated basis, over the expectedperiod during which their economic benefits are to be realized. For taxpurposes, the goodwill and amortization of the customer relationships will notbe deductible for tax purposes.

 

Thefollowing table reflects unaudited pro forma results of operations of theCompany for the three and six months ended June 30, 2008 assuming that the BDCtransaction had occurred on January 1, 2007 (in thousands, except pershare data):

 

| ** **          | ** ** | **Three Months Ended June 30,** | ** ** |
|---------------------|------------|---------------------------------|------------|
| ** **          | ** ** | **2007**                        | ** ** | **2008** | ** ** |
| ** **          | ** ** | **As Reported**                 | ** ** | **As Adjusted** | ** ** | **As Reported** | ** ** | **As Adjusted** | ** ** |
| Revenue             |       | $                               | 45,157     |   | $ | 51,571 |   | $ | 50,414 |   | $ | 53,672 |   |
| Net Income          |       | $                               | 9,049      |   | $ | 9,125 |   | $ | 10,204 |   | $ | 10,110 |   |
| Earnings per Share: |       |                            |       |   |   |   |   |   |   |
| Basic               |       | $                               | 0.60       |   | $ | 0.60 |   | $ | 0.67 |   | $ | 0.67 |   |
| Diluted             |       | $                               | 0.59       |   | $ | 0.60 |   | $ | 0.67 |   | $ | 0.66 |   |

 

| ** **          | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------|------------|-------------------------------|------------|
| ** **          | ** ** | **2007**                      | ** ** | **2008** |
| ** **          | ** ** | **As Reported**               | ** ** | **As Adjusted** | ** ** | **As Reported** | ** ** | **As Adjusted** | ** ** |
| Revenue             |       | $                             | 89,077     |   | $ | 101,005 |   | $ | 96,044 |   | $ | 104,651 |   |
| Net Income          |       | $                             | 15,947     |   | $ | 16,033 |   | $ | 18,071 |   | $ | 17,901 |   |
| Earnings per Share: |       |                          |       |   |   |   |   |   |   |
| Basic               |       | $                             | 1.05       |   | $ | 1.06 |   | $ | 1.19 |   | $ | 1.18 |   |
| Diluted             |       | $                             | 1.04       |   | $ | 1.05 |   | $ | 1.18 |   | $ | 1.17 |   |

 

**5. FAIR VALUE MEASUREMENTS**

 

The following tables present informationabout our assets and liabilities that are measured at fair value on a recurringbasis as of June 30, 2008, and indicates the fair value hierarchy of thevaluation techniques we utilized to determine such fair value. In general, fairvalues determined by Level 1 inputs utilize quoted prices (unadjusted) inactive markets for identical assets or liabilities. Fair values determined byLevel 2 inputs utilize data points that are observable such as quotedprices, interest rates and yield curves. Fair values determined by Level 3inputs are unobservable data points for the asset or liability, and includessituations where there is little, if any, market activity for the asset orliability (in thousands):

 
| **Description**                         | ** ** | **Quoted Prices in  Active Markets  (Level 1)** | ** ** | **Significant Other  Observable Inputs  (Level 2)** | ** ** | **Significant  Unobservable Inputs  (Level 3)** | ** ** | **Total** | ** ** |
|-----------------------------------------|------------|---------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|-----------|------------|
| Commercial paper                        |       | $                                                                   | —     |                                                               | $          | —                                                    |       | $         | —     |   | $ | — |   |
| Certificates of deposit                 |       | —                                                              |       | 5,400                                                              |       | —                                                    |       | 5,400     |       |
| Money market funds                      |       | 20,111                                                              |       | —                                                             |       | —                                                    |       | 20,111    |       |
| **Total assets measured at fair value** |       | $                                                                   | 20,111     |                                                               | $          | 5,400                                                     |       | $         | —     |   | $ | 25,511 |   |

 

**6.  DEPOSIT FORACQUISITION OF SPECTRUM**

 

*During the first quarter of 2008, we were awarded the rightto acquire, for $3.0 million, certain spectrum in connection with ourparticipation in the FCC’s auction (FCC Auction No. 73) of 700 MHzspectrum being re-claimed by the FCC from the broadcast industry and sold bythe FCC to the wireless industry.  Thisamount is included in Other Assets in our Consolidated Balance Sheet as of June 30,2008; it will be reclassified to Licenses, and considered a capitalexpenditure, upon the finalization of such award, scheduled to occur during thefirst quarter of 2009.*

* *

**7.  CREDIT FACILITIES**

 

Long-term debt comprises the following (in thousands):

 
| ** **                                                                     | ** ** | **December 31,  2007** | ** ** | **June 30,  2008** | ** ** |
|--------------------------------------------------------------------------------|------------|-----------------------------|------------|-------------------------|------------|
| Note payable, as amended, to CoBank, ACB by  ATN under a $50 million term loan |       | $                           | 50,000     |                    | $          | 50,000 |   |
|                                                                                |            |                             |            |                         |            |  |  |

 

On August 31, 2007, ATN, as borrower, amended andrestated its credit agreement with CoBank, ACB and Banco Popular de Puerto Rico(the “CoBank Credit Agreement”). The CoBank Credit Agreement provides a $50 millionterm loan (the “Term Loan”) and a $20 million revolving credit facility (the “RevolverFacility”, together with the Term Loan, the “Credit Facility”). The CreditFacility is guaranteed by our Commnet and Sovernet subsidiaries and iscollateralized by, among other things, a security interest in substantially allof the assets of and stock owned by ATN, Commnet and Sovernet. The Term Loanhas principal repayments deferred until the maturity of the loan on October 31,2010. Interest on the Term Loan is payable on a quarterly basis at a fixedannual interest rate of 5.85%, net of any patronage payments received by theCompany from the bank. Amounts outstanding under the Revolver Facility (none asof June 30, 2008) accrue interest at a rate equal to (at the Company’soption): (i) LIBOR plus a margin ranging from 1.25% to 1.50% or (ii) avariable rate of interest as defined within the Revolver Facility plus 1%.

 

The CoBank Credit Agreement contains certainaffirmative and negative covenants of ATN and its subsidiaries (includingCommnet) that are typical for loan facilities of this type. Among other things,these covenants restrict ATN’s ability to incur additional debt in the futureor to incur liens on its property. ATN has also agreed to maintain certain financialratios under the facilities, including a total leverage ratio (debt to EBITDA)of two to one or less; a debt service coverage ratio (EBITDA to debt service)of three to one or more; an equity to assets ratio of 0.4 to one or more; and aspecified leverage ratio for Commnet of 5.00 to one or less. As of June 30,2008, the Company was in compliance with the covenants of the CoBank CreditFacility.

 

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**8.  STOCK-BASEDCOMPENSATION**

 

In May 2008, at the Company’s Annual Meeting of Stockholders, theCompany’s stockholders approved the 2008 Equity Incentive Plan (the “2008 Plan”).  The 2008 Plan replaced the 1998 Stock OptionPlan, the 2005 Restricted Stock Plan and the Director’s Remuneration Plan(collectively and including the 2008 Plan the “Share Based Plans”), under whichno further awards will be made.  The 2008Plan allows for the grant of stock options, restricted stock, restricted stockunits, stock equivalents and awards of shares of common stock that are notsubject to restrictions or forfeiture.

 

During the three months ended June 30, 2007 and2008, the Company recognized $204,000 and $277,000, respectively, of non-cashcompensation expense relating to grants under its Share Based Plans.  During the six months ended June 30,2007 and 2008, the Company recognized $418,000 and $549,000, respectively, ofnon-cash compensation expense relating to grants under its Share Based Plans.

 

**9. NET INCOME PER SHARE**

 

For the three and six months ended June 30, 2007and 2008, stock options and restricted stock issued under the share based planswere the only potentially dilutive securities.

 

The reconciliation frombasic to diluted weighted average common shares outstanding is as follows (inthousands):

 
| ** **                                          | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                          | ** ** | **2007**                                        | ** ** | **2008**                                      | ** ** | **2007** | ** ** | **2008** | ** ** |
| Basic weighted average common shares  outstanding   |       | 15,161                                          |       | 15,187                                        |       | 15,156 |   | 15,192 |   |
| Unvested shares                                     |       | 43                                              |       | 24                                            |       | 46 |   | 24 |   |
| Stock options                                       |       | 82                                              |       | 42                                            |       | 86 |   | 51 |   |
| Diluted weighted average common shares  outstanding |       | 15,286                                          |       | 15,253                                        |       | 15,288 |   | 15,267 |   |

 

The following notes the number of common shares notincluded in the above calculation because the effects of such wereanti-dilutive:

 
| ** **      | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **      | ** ** | **2007**                                        | ** ** | **2008**                                      | ** ** | **2007** | ** ** | **2008** | ** ** |
| Unvested shares |       | —                                          |       | 7                                             |       | — |   | 7 |   |
| Stock options   |       | 211                                             |       | 434                                           |       | 196 |   | 416 |   |
| Total           |       | 211                                             |       | 441                                           |       | 196 |   | 423 |   |

 

**10. SEGMENT REPORTING**

 

The Company has fivereportable segments which are considered material for separate disclosure underStatement of Financial Accounting Standards No. 131, *Disclosures About Segments of an Enterprise andRelated Information.* Those five segments are: i) IntegratedTelephony-International, which generates all of its revenues in Guyana and hasall of its assets located in Guyana (“GT&T”), ii) Rural Wireless,which generates all of its revenues in the United States and has all of itsassets located in the United States (“Commnet”), iii) Island Wireless, iv) IntegratedTelephony-Domestic, which generates all of its revenues and has all of itsassets located in the United States (“Sovernet”) and v) WirelessTelevision and Data, which generates all of its revenues in and has all of itsassets located in the U.S Virgin Islands (“Choice”).  Island Wireless became a reportable segmentupon completion of BDC’s share repurchase and resulting increase in the Company’sequity interest in BDC, effective May 15, 2008.  The Island Wireless segment generates all ofits revenues in and has all of its assets in Bermuda (“Bermuda DigitalCommunications”). The operating segments are managed separately because eachoffers different services and serves different markets. Certain elements of the2007 segment information have been revised to conform to the current format offinancial information reviewed by the Company’s chief operating decisionmakers.

 

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The following tablesprovide information for each operating segment (in thousands):

 

| ** **                                                  | ** ** | **For the Three Months Ended June 30, 2007** | ** ** |
|-------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **Integrated  Telephony-  International**                                       | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  and Data** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Revenues                                                    |       | $                                                                               | 26,367     |   | $ | 12,919 |   | $ | — |   | $ | 3,693 |   | $ | 2,178 |   | $ | 2,602 |   | $ | (2,602 | ) | $ | 45,157 |   |
| Depreciation and amortization                               |       | 3,889                                                                           |       | 1,723 |   | — |   | 431 |   | 539 |   | 76 |   | — |   | 6,658 |   |
| Non-cash stock-based compensation                           |       | —                                                                          |       | — |   | — |   | 32 |   | — |   | 172 |   | — |   | 204 |   |
| Gain on disposition of long-lived assets                    |       | —                                                                          |       | (1,043 | ) | — |   | — |   | — |   | — |   | — |   | (1,043 | ) |
| Operating income (loss)                                     |       | 11,394                                                                          |       | 6,502 |   | — |   | 497 |   | (283 | ) | 532 |   | (2,602 | ) | 16,040 |   |
| Interest expense                                            |       | —                                                                          |       | (168 | ) | — |   | — |   | (880 | ) | (660 | ) | 1,047 |   | (661 | ) |
| Interest income                                             |       | 175                                                                             |       | 50 |   | — |   | 81 |   | — |   | 1,258 |   | (1,047 | ) | 517 |   |
| Income taxes                                                |       | 4,731                                                                           |       | 2,726 |   | — |   | 195 |   | (99 | ) | (303 | ) | — |   | 7,250 |   |
| Equity in earnings of unconsolidated affiliates, net of tax |       | —                                                                          |       | — |   | — |   | — |   | — |   | 7,475 |   | (6,833 | ) | 642 |   |
| Net income (loss)                                           |       | $                                                                               | 4,340      |   | $ | 3,632 |   | $ | — |   | $ | 227 |   | $ | (1,326 | ) | $ | 9,009 |   | (6,833 | ) | $ | 9,049 |   |
|                                                             |            |                                                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **                                                  | ** ** | **For the Three Months Ended June 30, 2008** | ** ** |
|-------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **Integrated  Telephony-  International**                                       | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  and Data** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Revenues                                                    |       | $                                                                               | 24,687     |   | $ | 16,863 |   | $ | 2,966 |   | $ | 3,730 |   | $ | 2,168 |   | $ | 2,677 |   | $ | (2,677 | ) | $ | 50,414 |   |
| Depreciation and amortization                               |       | 4,163                                                                           |       | 2,215 |   | 275 |   | 422 |   | 275 |   | 74 |   | — |   | 7,424 |   |
| Non-cash stock-based compensation                           |       | —                                                                          |       | — |   | — |   | 32 |   | — |   | 245 |   | — |   | 277 |   |
| Gain on disposition of long-lived asset                     |       | —                                                                          |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Operating income (loss)                                     |       | 10,817                                                                          |       | 8,429 |   | 938 |   | 553 |   | (385 | ) | 383 |   | (2,677 | ) | 18,058 |   |
| Interest expense                                            |       | —                                                                          |       | (76 | ) | (105 | ) | (1 | ) | (879 | ) | (663 | ) | 1,060 |   | (664 | ) |
| Interest income                                             |       | 155                                                                             |       | 96 |   | 5 |   | 53 |   | — |   | 1,161 |   | (1,060 | ) | 410 |   |
| Income taxes                                                |       | 4,590                                                                           |       | 3,112 |   | — |   | 186 |   | (135 | ) | (1,111 | ) | — |   | 6,642 |   |
| Equity in earnings of unconsolidated affiliates, net of tax |       | —                                                                          |       | — |   | — |   | — |   | — |   | 8,078 |   | (7,806 | ) | 272 |   |
| Net income (loss)                                           |       | $                                                                               | 4,044      |   | $ | 4,519 |   | $ | 394 |   | $ | 259 |   | $ | (1,275 | ) | $ | 10,069 |   | $ | (7,806 | ) | $ | 10,204 |   |

 
| ** **                                                  | ** ** | **For the Six Months Ended June 30, 2007** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **Integrated  Telephony-  International**                                     | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  and Data** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Revenues                                                    |       | $                                                                             | 52,822     |   | $ | 24,756 |   | $ | — |   | $ | 7,326 |   | $ | 4,173 |   | $ | 5,130 |   | $ | (5,130 | ) | $ | 89,077 |   |
| Depreciation and amortization                               |       | 7,766                                                                         |       | 3,253 |   | — |   | 901 |   | 1,086 |   | 153 |   | — |   | 13,159 |   |
| Non-cash stock-based compensation                           |       | —                                                                        |       | — |   | — |   | 63 |   | — |   | 355 |   | — |   | 418 |   |
| Gain on disposition of long-lived assets                    |       | —                                                                        |       | (1,176 | ) | — |   | — |   | — |   | — |   | — |   | (1,176 | ) |
| Operating income (loss)                                     |       | 22,470                                                                        |       | 11,372 |   | — |   | 936 |   | (851 | ) | 676 |   | (5,130 | ) | 29,473 |   |
| Interest expense                                            |       | —                                                                        |       | (335 | ) | — |   | — |   | (1,742 | ) | (881 | ) | 2,075 |   | (883 | ) |
| Interest income                                             |       | 315                                                                           |       | 84 |   | — |   | 145 |   | — |   | 2,639 |   | (2,075 | ) | 1,108 |   |
| Income taxes                                                |       | 9,365                                                                         |       | 4,555 |   | — |   | 344 |   | (298 | ) | (52 | ) | — |   | 13,914 |   |
| Equity in earnings of unconsolidated affiliates, net of tax |       | —                                                                        |       | — |   | — |   | — |   | — |   | 13,103 |   | (12,005 | ) | 1,098 |   |
| Net income (loss)                                           |       | $                                                                             | 8,459      |   | $ | 6,052 |   | $ | — |   | $ | 426 |   | $ | (2,877 | ) | $ | 15,892 |   | $ | (12,005 | ) | $ | 15,947 |   |

 

| ** **                                                  | ** ** | **For the Six Months Ended June 30, 2008** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **Integrated  Telephony-  International**                                     | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  and Data** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Revenues                                                    |       | $                                                                             | 49,890     |   | $ | 31,406 |   | $ | 2,966 |   | $ | 7,430 |   | $ | 4,352 |   | $ | 5,226 |   | $ | (5,226 | ) | $ | 96,044 |   |
| Depreciation and amortization                               |       | 8,347                                                                         |       | 4,206 |   | 275 |   | 850 |   | 673 |   | 150 |   | — |   | 14,501 |   |
| Non-cash stock-based compensation                           |       | —                                                                        |       | — |   | — |   | 63 |   | — |   | 486 |   | — |   | 549 |   |
| Gain on disposition of long-lived assets                    |       | —                                                                        |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Operating income (loss)                                     |       | 21,706                                                                        |       | 15,178 |   | 938 |   | 1,133 |   | (806 | ) | 789 |   | (5,226 | ) | 33,712 |   |
| Interest expense                                            |       | —                                                                        |       | (214 | ) | (105 | ) | (3 | ) | (1,759 | ) | (1,312 | ) | 2,077 |   | (1,316 | ) |
| Interest income                                             |       | 350                                                                           |       | 271 |   | 5 |   | 112 |   | — |   | 2,317 |   | (2,077 | ) | 978 |   |
| Income taxes                                                |       | 9,527                                                                         |       | 5,593 |   | — |   | 386 |   | (282 | ) | (1,192 | ) | — |   | 14,032 |   |
| Equity in earnings of unconsolidated affiliates, net of tax |       | —                                                                        |       | — |   | — |   | — |   | — |   | 14,804 |   | (14,069 | ) | 735 |   |
| Net income (loss)                                           |       | $                                                                             | 7,879      |   | $ | 8,122 |   | $ | 394 |   | $ | 537 |   | $ | (2,581 | ) | $ | 17,789 |   | $ | (14,069 | ) | $ | 18,071 |   |

 

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**SegmentAssets**

 

| **December 31, 2007** | ** ** | **Integrated  Telephony-  International** | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  And Data** | ** ** | **Corporate** | ** ** | **Consolidated** | ** ** |
|---------------------------------|------------|-------------------------------------------|------------|---------------------|------------|----------------------|------------|--------------------------------------|------------|-----------------------------------------|------------|---------------|------------|------------------|------------|
| Net Fixed Assets                |       | $                                         | 111,963    |                | $          | 34,868               |       | $                                    | —     |                                    | $          | 3,320         |       | $                | 4,884      |   | $ | 718 |   | $ | 155,753 |   |
| Goodwill                        |       | —                                    |       | 32,148              |       | —               |       | 7,196                                |       | —                                  |       | —        |       | 39,344           |       |
| Total Assets                    |       | 156,094                                   |       | 117,680             |       | —               |       | 22,922                               |       | 6,547                                   |       | 41,383        |       | 344,626          |       |
|                                 |            |                                           |            |                     |            |                      |            |                                      |            |                                         |            |               |            |                  |            |  |  |  |  |  |  |  |

 

**SegmentAssets**

 

| **June 30, 2008** | ** ** | **Integrated  Telephony-  International** | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  And Data** | ** ** | **Corporate** | ** ** | **Consolidated** | ** ** |
|-----------------------------|------------|-------------------------------------------|------------|---------------------|------------|----------------------|------------|--------------------------------------|------------|-----------------------------------------|------------|---------------|------------|------------------|------------|
| Net Fixed Assets            |       | $                                         | 107,321    |                | $          | 45,306               |       | $                                    | 12,898     |                                    | $          | 3,166         |       | $                | 4,489      |   | $ | 572 |   | $ | 173,752 |   |
| Goodwill                    |       | —                                    |       | 32,148              |       | 855                  |       | 7,274                                |       | —                                  |       | —        |       | 40,277           |       |
| Total Assets                |       | 155,934                                   |       | 121,145             |       | 33,336               |       | 22,544                               |       | 6,193                                   |       | 11,093        |       | 350,245          |       |
|                             |            |                                           |            |                     |            |                      |            |                                      |            |                                         |            |               |            |                  |            |  |  |  |  |  |  |  |

 

**CapitalExpenditures**

 

| **Six Months Ended   June 30,** | ** ** | **Integrated  Telephony-  International** | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  And Data** | ** ** | **Corporate** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------|------------|---------------------|------------|----------------------|------------|--------------------------------------|------------|-----------------------------------------|------------|---------------|------------|------------------|------------|
| 2007                                                |       | $                                         | 10,682     |                | $          | 7,078                |       | $                                    | —     |                                    | $          | 575           |       | $                | 4          |   | $ | — |   | $ | 18,339 |   |
| 2008                                                |       | 5,905                                     |       | 14,506              |       | 22                   |       | 294                                  |       | 171                                     |       | 2             |       | 20,900           |       |
|                                                     |            |                                           |            |                     |            |                      |            |                                      |            |                                         |            |               |            |                  |            |  |  |  |  |  |  |  |

 

**11. ****RELATED PARTY TRANSACTION**

 

In 2001, the Company curtailed the operations and funding of itsATN-Haiti and Transnet S.A. subsidiaries (the “Haitian Subsidiaries”),wrote-down its investment and began exploring strategic alternatives for theuse or disposition of the remaining assets of the Haitian Subsidiaries. In May 2006,the Company’s Board of Directors authorized the Company to enter intodiscussions to sell, at fair value, subject to review and final approval by theAudit Committee, the remaining assets of the Haitian Subsidiaries, consistingprimarily of an office building and 13 tower sites located in Haiti, toCornelius B. Prior, Jr., the Company’s Executive Chairman, who is also thefather of the Company’s Chief Executive Officer.

 

In August 2007, the Company, upon final approval by the Company’sBoard of Directors and Audit Committee, completed the sale of the remainingassets of the Haitian Subsidiaries to Access Haiti, S.A., a Haitian company inwhich Mr. Prior is a significant equity holder, for $750,000 and therelease by Access Haiti, S.A. of certain indebtedness of Transnet S.A. Inconnection with the sale, Mr. Prior has agreed to indemnify the Companyfor any claims made against the Haitian Subsidiaries by creditors and vendorsof the Haitian Subsidiaries in excess of $200,000 in the aggregate. In addition,Mr. Prior has agreed to assist the Company in dissolving the HaitianSubsidiaries and agreed that if the dissolution had not been completed by January 2008,the Company would retain the right to sell the Company’s equity interests inthe Haitian Subsidiaries to Mr. Prior for $1. On May 6, 2008, Mr. Priorpurchased the Company’s remaining equity interests.

 

**12.  COMMITMENTS ANDCONTINGENCIES**

 

**Regulatory and Litigation Matters**

 

The Company and its subsidiaries are subject to certain regulatory andlegal proceedings and other claims arising in the ordinary course of business,some of which involve claims for damages and taxes that are substantial inamount. The Company believes that, except for the items discussed below, forwhich the Company is currently unable to predict the final outcome, thedisposition of proceedings currently pending will not have a material adverseeffect on the Company’s financial position or results of operations.

 

***Regulatory***

 

The Company’s Guyana subsidiary, GT&T, is subject to regulation inGuyana under the provisions of its license and under the Guyana PublicUtilities Commission Act of 1999 and the Guyana Telecommunications Act of 1990.GT&T also has certain significant rights and obligations under theagreement pursuant to which the Company acquired its interest in GT&T in1991. In addition, because of the large volume of traffic that GT&T haswith the United States, GT&T can be significantly affected by orders ofU.S. regulatory agencies.

 

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In a letter dated September 8, 2006, Guyana’s National FrequencyManagement Unit (“NFMU”) implied that spectrum fees in 2008 and onward may beincreased beyond an amount agreed between GT&T and the Government. GT&Tstated its position in a September 14, 2006 letter to the Guyana Governmentthat, by agreement with the Government, spectrum fees would be capped until theNFMU develops a fee methodology, acceptable to all GSM Spectrum licensees, thatresults in total spectrum fees payable that do not appreciably exceed thecapped amount. In correspondence to GT&T in June 2007, the NFMUstated, without indicating whether a fee methodology would be developed, thatthe cap on GSM spectrum fees will be removed in December 2007. In a letterdated July 3, 2007 to the NFMU, GT&T objected to the NFMU’s proposedaction and reiterated its position that determining spectrum fees prior todevelopment of an acceptable methodology would violate the Government’s prioragreement.

 

Since 2001, the Government has stated its intention to introduceadditional competition into Guyana’s telecommunications sector. In 2002, theGovernment held formal discussions with GT&T regarding this matter. In February andMarch 2008, at the request of the Government, GT&T met withhigh-ranking members of the Government officials to discuss potentialmodifications of GT&T’s exclusivity rights and the introduction ofcompetition for international voice and data services. ATN and GT&T believethat such competition is precluded by GT&T’s exclusive license to providedomestic fixed (local exchange) and international voice and data services inGuyana,  which has a stated expiration inDecember 2010 and is renewable for an additional 20 year term atGT&T’s option.

 

ATN and GT&T believe that any early termination of our exclusivitywould require our consent and appropriate compensation to GT&T, includingbut not limited to, an adjustment of service rates to reflect the real economiccost to GT&T of providing such services. The Government has informally indicatedthat it anticipates a transition to full competition in the telecommunicationssector will require a significant rebalancing of local and long distance ratesfor domestic and international services provided by GT&T.  GT&T is working with the Government todevelop an appropriate methodology and process to implement rate rebalancingduring and after a transition to competition. Further, ATN and GT&T believe that certain modifications to thelegal and regulatory regime governing the telecommunications market sector inGuyana would be needed, as well as the satisfactory resolution of certainlong-standing claims between ATN and GT&T and the Government relating tocertain tax and other matters (as described below), for GT&T to considervoluntarily relinquishing its rights by law and contract to be the exclusiveprovider of domestic fixed and international voice and data services inGuyana.  Although discussions areongoing, we have been open about our willingness to forego renewal of ourinternational exclusivity rights in 2010 as part of an overall settlement andagreement, although the Government has indicated to us a desire to introducecompetition in international services in late 2008.

 

At this time, ATN and GT&T do not know if there will be anyregulatory developments in Guyana that will have the effect of terminating orlimiting the exclusivity provision of our license, and if so, the timing of anysuch developments and whether they would be pursuant to an agreement betweenGT&T and the Government. Other than entering into such an agreement onterms acceptable to us, ATN and GT&T would seek to enforce GT&T’srights by law and contract to be the exclusive provider of international voiceand data services in Guyana. Although ATN and GT&T believe that they wouldbe entitled to damages for any involuntary termination of that exclusivelicense, ATN and GT&T cannot guarantee that we would prevail in any courtor arbitration proceeding.

 

On January 15, 2007, the PublicUtilities Commission (“PUC”) issued a ruling that fixed floor and ceiling ratesfor both the pre-paid and the post-paid cellular services offered by GT&Tand its competition. GT&T’s National Competition has been offeringpromotions that appear to us to violate the floor on cellular rates. We believethe PUC is discriminately enforcing the new minimum and maximum rates in favorof GT&T’s primary competitor and, in late 2007, GT&T filed a lawsuitcontesting the PUC’s enforcement.  ThePUC has indicated its intent to revisit the floor rate and, possibly, eliminateit.

 

In January 2007, the PUC orderedGT&T and GT&T’s National Competition to implement per-second billingfor cellular airtime as opposed to the pre-existing practice of per-minutebilling for airtime. The PUC has initiated a proceeding to consider expandingper-second billing to non-mobile, international outbound service.  Any such action by the PUC could have anadverse effect on GT&T’s financial condition or results of operations.

 

In October 1997, the PUC ordered GT&T to increase the numberof telephone lines in service to a total of 69,278 lines by the end of 1998;89,054 lines by the end of 1999; and 102,126 lines by the end of 2000; toallocate and connect an additional 9,331 telephone lines before the end of1998; and to provide to subscribers who request them facilities for calldiversion, call waiting, reminder call, and three-way calling by the end of1998. In issuing this order, the PUC did not hear evidence or make any findingson the cost of providing these lines and services, the adjustment in telephonerates that may be necessary to give GT&T a fair return on its investment,or the ways and means of financing the requirements of the PUC’s order.GT&T has appealed the PUC’s order to the Guyana Court of Appeal, and thatappeal is still pending. No stay currently exists against this order.

 

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InJuly 2004, the FCC released an order revising the spectrum band planapplicable to the Broadband Radio Service and Educational Broadband Service.These are the spectrum bands through which Choice operates its video andbroadband data services. The new rules restructure these spectrum bandsand could materially impact Choice customers and operations if Choice isrequired to transition to the new band plan. The FCC has stated that it willconsider requests for waiver of the new band plan requirements on acase-by-case basis and described the circumstances under which waivers would begranted. To date the FCC has granted at least three waivers that excuseentities similar to Choice from the re-banding requirement. On April 30,2007, Choice filed a waiver request at the FCC, which remains pending.

 

Ina separate proceeding in September 2005, the FCC released an orderreallocating to Advanced Wireless Services (“AWS”) another spectrum band usedby Choice for its broadband data service. In September 2006, the FCCcompleted an auction of the AWS spectrum to new licensees. In order to clearthe spectrum for the new licensee, Choice will be required to relocate certainoperations to different spectrum. However, Choice believes any disruption toits operations by relocating to accommodate a new AWS licensee will bemitigated by the FCC’s relocation and compensation rules which specify amandatory, multi-year negotiation period and relocation to comparablefacilities with the costs borne by the party precipitating the move.

 

***Litigation***

 

Uponthe acquisition of GT&T in January 1991, ATN entered into an agreementwith the government of Guyana to significantly expand GT&T’s existingfacilities and telecommunications operations and to improve service within athree-year period pursuant to an expansion and service improvement plan (the “Plan”).The government agreed to permit rate increases in the event of currencydevaluation within the three-year period, but GT&T was unable to get timelyincreases when the Guyanese currency suffered a sharp decline in March 1991.The Plan was modified in certain respects, and the date for completion of thePlan was extended to February 1995. Since 1995, the PUC has had pending aproceeding initiated by the Minister of Telecommunications of Guyana withregard to the failure of GT&T to complete the Plan by February 1995.The PUC last held hearings on this matter in 1998. It is GT&T’s positionthat its failure to receive timely rate increases in compensation for thedevaluation of currency in 1991 provides legal justification for GT&T’sdelay in completing the Plan. If the PUC were to find that GT&T was notexcused from fulfilling the terms of the Plan by February 1995, GT&Tcould be subject to monetary penalties, cancellation of its license, or otheraction by the PUC or the government that could have a material adverse effecton the Company’s business and prospects. The requirements of the Plan were substantiallycompleted more than five years ago. GT&T believes that its obligations havebeen fulfilled and it has continued to aggressively develop thetelecommunications infrastructure in all areas including landline, wireless anddata.

 

GT&Tis contesting income tax assessments of approximately $7.3 million that ithas received from the commissioner of Inland Revenue for the years 1991-1996based on the disallowance as a deduction for income tax purposes of five-sixthsof the advisory fees payable by GT&T to the Company. The deductibility ofthese advisory fees was upheld for one of these years by a decision of the HighCourt in August 1995. The Guyana Commission of Inland Revenue has filed aHigh Court Writ seeking an order setting aside that decision on the groundsthat the Commissioner did not have a proper hearing. GT&T has contestedthat Writ. The assessments for the other years are being held in abeyancepending decision on the Writ and GT&T motions to strike. Subsequent to December 31,2001, GT&T received assessments for the years 1997-2000 in the aggregateamount of approximately $6.5 million raising the same issues. GT&Texpects that proceedings on these assessments will also be held in abeyancepending the Court’s decision.

 

InNovember 1997, GT&T received assessments of the current equivalent ofapproximately $9.7 million from the commissioner of Inland Revenue fortaxes for the years 1991 through 1996. It is GT&T’s understanding thatthese assessments stem from an audit that the Guyana High Court stayed beforeit was completed. Apparently, because the audit was cut short as a result ofthe High Court’s order, GT&T did not receive notice of, and an opportunityto respond to, the proposed assessments as is the customary practice in Guyana,and substantially all of the issues raised in the assessments appear to bebased on mistaken facts. GT&T has applied to the Guyana High Court for anorder prohibiting the commissioner of Inland Revenue from enforcing theassessments on the grounds that the origin of the audit and the failure to giveGT&T notice of, and opportunity to respond to, the proposed assessmentsviolated Guyanese law. The Guyana High Court has issued an order effectivelyprohibiting any action on the assessments pending the determination by the HighCourt of the merits of GT&T’s application.

 

ShouldGT&T be held liable for any of the above tax liabilities, totaling$23.5 million, the Company believes that the government of Guyana would beobligated to reimburse GT&T for any amounts that would reduce GT&T’sreturn on investment to less than 15% per annum for the relevant periods.

 

Inearly 2000, Inet Communications, Inc., an internet service provider inGuyana, and the Guyana Consumers Association filed a suit in the High Courtagainst the Attorney General of Guyana and GT&T. The suit claims thatGT&T is not entitled to rate increases based on the agreement between theGovernment of Guyana and ATN and that the Civil Law of Guyana prohibits what isreferred to as 

 

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GT&T’smonopoly. Inet’s motion was struck down for non-appearance of counsel. However,Inet’s counsel has applied for the matter to be restored. The Court has not yettaken action on Inet’s application.

 

InJuly 2002 an individual sued the Attorney General of Guyana in the Guyanacourts asking, among other things, for a declaration that the section of theCompany’s 1990 contract with the Government of Guyana granting to GT&T anexclusive right to operate a telecommunications system in Guyana was null andvoid as contrary to law and to the Constitution of Guyana. GT&T has joinedthe suit to contest these claims and this proceeding remains pending.

 

Forfurther information concerning other pending litigation matters, thedisposition of which could have a material adverse effect on the Company’sfinancial position or results of operations, see “Notes to Consolidated Financial Statements, Note 12, Commitmentsand Contingencies — Regulatory and Litigation Matters” in our 2007 Form 10-K.

 

**Item 2. Management’s Discussionand Analysis of Financial Condition and Results of Operations**

 

This discussion should be read in conjunction withManagement’s Discussion and Analysis of Financial Condition and Results ofOperations included in our 2007 Form 10-K. Some of the statements in thediscussion are forward-looking statements which are subject to risks,uncertainties and other factors that could cause actual results to differmaterially from future results expressed or implied by such forward-lookingstatements. These risk factors include those discussed under Item 1A, “RiskFactors” in our 2007 Form 10-K and those set forth in this Report under “CautionaryStatement Regarding Forward-Looking Statements.”

 

**OVERVIEW**

 

Weprovide wireless and wireline telecommunications services in the Caribbean andNorth America through the following operating subsidiaries and affiliate:

 

·       Guyana Telephone & TelegraphCompany, Ltd. (or GT&T), the national and international telephonecompany in the Republic of Guyana and the largest wireless service provider inthat country. We have owned 80% of the equity of GT&T since January 1991.

 

·       Commnet Wireless, LLC (or Commnet), an owner andoperator of wholesale wireless networks in rural areas of the United States.Commnet provides wireless voice and data communications roaming servicesprimarily to national, regional and local wireless carriers. We acquired 95% ofthe equity of Commnet in September 2005 and the remaining 5% in January 2007.

 

·         Bermuda Digital Communications, Ltd. (or “BDC”),the largest wireless voice and data communications service provider in Bermuda,doing business under the name “Cellular One”. We acquired an equity interestin, and signed a management contract with, BDC in 1998.  On May 15, 2008, BDC completed a sharerepurchase of its common stock.  We didnot tender any shares for repurchase, and, as a result of the transaction,increased our holdings from 43% to approximately 58% of BDC’s outstandingcommon stock.  Prior to this increase inholdings, we accounted for our investment in BDC under the equity method andearnings from BDC did not appear in our income from operations, but wereinstead reflected in equity in earnings of unconsolidated affiliates.  Effective with the completion of BDC’s sharerepurchase, we began consolidating BDC’s results of operations.

 

·         Sovernet, Inc.,(or Sovernet), a facilities-based integrated voice, broadband datacommunications and dial-up service provider in New England, primarily in Vermont.We have owned 96% of Sovernet since its acquisition in February 2006.

 

·       Choice Communications, LLC (or Choice), a leadingprovider of fixed wireless broadband data services, wireless digital televisionservices and dial-up internet services to retail and business customers in theU.S. Virgin Islands. We acquired Choice in October 1999 and own 100% ofthe equity of Choice.

 

As a holding company, we provide management,technical, financial, regulatory, and marketing services to, and typicallyreceive a management fee equal to approximately 4% to 6% of revenues from eachoperating subsidiary.

 

The following chart summarizes the operatingactivities of our subsidiaries and the markets they serve as of June 30,2008:

 
| **Services** | ** ** | **Segment**                                                         | ** ** | **Operating Subsidiary/Affiliate** | ** ** | **Markets**                                    |
|--------------|------------|---------------------------------------------------------------------|------------|-----------------------------------------|------------|------------------------------------------------|
| Wireless     |       | Rural Wireless  Integrated Telephony-International  Island Wireless |       | Commnet  GT&T  BDC                  |       | United States (rural  markets) Guyana  Bermuda |

 

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| Local Telephone and Data    |   | Integrated  Telephony-International  Integrated Telephony-Domestic  Wireless Television and Data |   | GT&T  Sovernet  Choice (internet access) |   | Guyana  United States (New England)  U.S. Virgin Islands |
|-----------------------------|--------|--------------------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|----------------------------------------------------------|
|                        |   |                                                                                             |   |                                         |   |                                                     |
| International Long Distance |   | Integrated  Telephony-International                                                              |   | GT&T                                     |   | Guyana                                                   |
|                        |   |                                                                                             |   |                                         |   |                                                     |
| Other                       |   | Wireless Television and  Data                                                                    |   | Choice (digital television)                  |   | U.S. Virgin Islands                                      |

 

For information about our business segments andgeographical information about our operating revenues and long-lived assets,see Note 10 to the Consolidated Financial Statements included in this Report.

 

Inthe past, we generated most of our revenue and operating income from ourGT&T operations and we continue to rely on GT&T for a significantportion of our revenues and profits. GT&T provides domestic wirelinetelephone service and international long distance service pursuant to anexclusive license from the Government of Guyana and provides wireless serviceon a non-exclusive basis. The rates that GT&T may charge for its servicesare regulated by the Public Utility Commission of Guyana (or PUC), anindependent regulatory body responsible for regulating telecommunications. See “Business—Regulationof Our GT&T Subsidiary” in the 2007 Form 10-K. The largest componentof GT&T’s contribution to our consolidated revenue and profit has been fromits international long distance business and that business still accounts forroughly half of GT&T’s revenue.  Mostof these revenues and profits are from payments by foreign carriers, which aredenominated in U.S. dollars, for handling international long distance callsoriginating by foreign carriers and terminating in Guyana. The rates at whichGT&T collects fees from foreign carriers are established by agreementsbetween it and foreign carriers, and can be affected by limits set by foreigntelecommunications regulators, especially the U.S. Federal CommunicationsCommission (or FCC). The primary drivers of the long distance business are thepopulation of Guyanese living abroad who initiate calls to Guyana, the rateforeign carriers pay GT&T for handling the incoming international calls,and the number of people in Guyana capable of receiving international longdistance calls, which consist of wireline telephone customers and all thewireless subscribers in Guyana (including subscribers to competitor wirelessservice providers). In addition, in recent years, we believe various methods ofillegal bypass and alternative and cheaper media for communication, such ase-mail and text messaging, may have had a negative impact on both voice trafficand on international long distance revenues. We have taken a number of measuresto counter illegal bypass, including taking action against unlicensed operatorsin Guyana, introducing special outbound call center rates and we are examiningautomated technical solutions as well. GT&T has also recently faced anincreased competitive environment for wireless services in Guyana. Digicel’sentry into the Guyana wireless market has significantly increased thecompetition we face in the Guyana wireless market. Since early 2007, Digicelhas used aggressive operational and capital spending to gain market share,including promotional pricing, the use of extensive give-aways and handsetsubsidies. In turn, we have countered with our own promotions and acceleratedthe timing of some of our capital expenditures on network expansion andupgrades. We believe that network coverage and quality of service at competitiveprices are some of the most important bases on which we compete. In theshort-term, however, promotions can have a significant effect on the market. Thisheightened competition has resulted in higher marketing expense and a declinein market share.

 

In2005 and 2006, we entered new businesses and markets through our acquisitionsof Commnet and Sovernet. These businesses have provided us with new sources ofrevenues and with additional growth opportunities. As a result, while GT&Tcontinues to represent a significant portion of our revenues and profits, itsrelative contribution to our consolidated revenues and consolidated net incomehas declined significantly in recent years. For the quarters ended June 30,2007 and 2008, GT&T generated approximately 58% and 49%, respectively, ofour consolidated revenues.  Commnetgenerated approximately 65% and 68% of our wireless revenue for the secondquarter of 2007 and 2008, respectively. Sovernet generated approximately 32% and30% of our local telephone and data revenue for the three months ended June 30,2007 and 2008. We are actively evaluating additional acquisition opportunitiesof businesses that meet our return on investment and other acquisitioncriteria.

 

**Recent Developments**

 

*Guyana Operations.*    Since 2001, the Government of Guyana has stated its intention to introduceadditional competition into Guyana’s telecommunications sector, includingconducting formal discussions with GT&T in 2002 regarding this matter. In February andMarch 2008, at the request of the Government, GT&T met withhigh-ranking members of the Government to discuss potential modifications ofGT&T’s exclusive right to offer international voice and data services. Webelieve that such competition is precluded by the exclusivity provisions of ourlicense, which has a stated expiration in December 2010 and is renewablefor an additional 20 year term at our option.

 

Webelieve that any early termination of our exclusivity would require our consentand appropriate compensation to GT&T, including but not limited to, anadjustment of service rates to reflect the real economic cost to GT&T ofproviding such services.  The Governmentrecently indicated that a transition to full competition in the telecommunicationssector is anticipated to require a significant 

 

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rebalancing of local and long distance ratesfor domestic and international services provided by GT&T.  GT&T is working with the Government todevelop an appropriate methodology and process to implement rate rebalancingduring and after a transition to competition.

 

Further,we believe that certain modifications to the legal and regulatory regime governingthe telecommunications market sector in Guyana would be needed, as well as thesatisfactory resolution of certain long-standing claims between us and theGovernment relating to certain tax and other matters (as described inNote 12 to our 2007 Form 10-K), for us to consider voluntarilyrelinquishing GT&T’s rights by law and contract to be the exclusiveprovider of international voice and data services in Guyana. Althoughdiscussions are ongoing, we have been open about our willingness to foregorenewal of our international exclusivity rights in 2010 as part of an overallsettlement and agreement, although the Government has indicated to us a desireto introduce competition in international services in late 2008.

 

Atthis time, we do not know if there will be any regulatory developments inGuyana that will have the effect of terminating or limiting our exclusivelicense, and if so, the timing of any such developments and whether they wouldbe pursuant to an agreement between us and the Government. Other than enteringinto such an agreement on terms acceptable to us, we would seek to enforceGT&T’s rights by law and contract to be the exclusive provider ofinternational voice and date services in Guyana. Although we believe that wewould be entitled to damages for any involuntary termination of that license,we cannot guarantee that we would prevail in any court or arbitrationproceeding.

 

Weare highly dependent on GT&T for a significant portion of our revenues andprofits. For the three months ended June 30, 2008 approximately 49% of ourconsolidated revenue and approximately 40% of our consolidated net income,respectively, were generated by GT&T. Our international long distancerevenues from GT&T have accounted for approximately 25% of our consolidatedrevenue during the three months ended June 30, 2008. As of June 30,2008, we have invested approximately $282 million in Guyanesetelecommunications infrastructure. A loss of exclusivity on international voiceand data services would result in a reduction in the international call trafficthat we handle and could also result in a decline in international callingrates and termination fees. Any revocation, early termination or othermodification of the exclusivity provisions of our license could adversely affecta majority of our revenues and profits and diminish the value of our investmentin Guyana. See “Risk Factors—Our exclusive license to provide local exchangeand long distance telephone services in Guyana is subject to significantpolitical and regulatory risk” in our 2007 Form 10-K.

 

*Commnet Transaction.*    In December 2007,Commnet completed the sale of 59 base stations, along with spectrum licenses,in two Midwestern states for total consideration of approximately$17.0 million and recorded a pre-tax gain of $5.0 million. At thesame time, Commnet entered into an agreement with this carrier to purchasespectrum, lease additional spectrum and build a network in rural areas in threeother states. As of May, 2008, this new network consists of approximately 70base stations, and includes a long-term roaming agreement with this carrier.Commnet committed to and completed the new network build by June 30, 2008.The agreement also provides the carrier with a purchase option on the new basestations exercisable beginning in 2010 through 2012 at a predetermined priceeach year. The purchase price consideration reduces each option year and wasdetermined based on estimates of what would be needed to provide a reasonablereturn on our investment and is intended to be reflective of the then fairvalue of the base stations.

 

*BDC.*    On May 15, 2008, BDCcompleted a $17.0 million share repurchase of its common stock. We did nottender any shares for repurchase, and, as a result of the transaction,increased our holdings from 43% to approximately 58% of BDC’s outstandingcommon stock.  We funded the transactionby loaning BDC $17.0 million from our cash on hand.

 

Upon completion of the tender offer, BDC’s option, which would havebeen exercisable in July 2008, to repurchase from us all of our equityinterest in BDC, was replaced with our right, exercisable in May 2013, topurchase all of BDC’s then outstanding common stock at the then fair value ofthe shares.  In the event we do notexercise that right, BDC will then have the right to purchase all of our equityinterest in BDC at the then fair value of the shares.

 

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**Results of Operations**

** **

***Three Months EndedJune 30, 2008 and 2007***

 
| ** **                                                                                              | ** ** | **Three Months Ended  June 30,** | ** ** | **Amount of  Increase** | ** ** | **Percent  Increase** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|------------------------------|------------|-----------------------|------------|
| ** **                                                                                              | ** ** | **2007**                                        | ** ** | **2008**                     | ** ** | **(Decrease)**        | ** ** | **(Decrease)** | ** ** |
| ** **                                                                                              | ** ** | ** **                                      | ** ** | **(In thousands)**      | ** ** | ** **            | ** ** |
| **REVENUE:**                                                                                            |       |                                            |       |                         |       |                  |       |   |   |
| Wireless                                                                                                |       | $                                               | 19,884     |                         | $          | 24,786                |       | $ | 4,902 |   | 24.7 | % |
| Local telephone and data                                                                                |       | 11,439                                          |       | 12,267                       |       | 828                   |       | 7.2 |   |
| International long distance                                                                             |       | 12,802                                          |       | 12,387                       |       | (415                  | )          | (3.2 | ) |
| Other                                                                                                   |       | 1,032                                           |       | 974                          |       | (58                   | )          | (5.6 | ) |
| Total revenue                                                                                           |       | 45,157                                          |       | 50,414                       |       | 5,257                 |       | 11.6 |   |
| **OPERATING EXPENSES:**                                                                                 | ** ** | ** **                                      | ** ** | ** **                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Termination and access fees                                                                             |       | 7,696                                           |       | 8,376                        |       | 680                   |       | 8.8 |   |
| Internet and programming                                                                                |       | 817                                             |       | 863                          |       | 46                    |       | 5.6 |   |
| Engineering and operations                                                                              |       | 5,709                                           |       | 5,930                        |       | 221                   |       | 3.9 |   |
| Sales and marketing                                                                                     |       | 3,641                                           |       | 2,944                        |       | (697                  | )          | (19.1 | ) |
| General and administrative                                                                              |       | 5,639                                           |       | 6,819                        |       | 1,180                 |       | 20.9 |   |
| Depreciation and amortization                                                                           |       | 6,658                                           |       | 7,424                        |       | 766                   |       | 11.5 |   |
| Gain on disposition of long-lived assets                                                                |       | (1,043                                          | )          | —                       |       | 1,043                 |       | 100.0 |   |
| Total operating expenses                                                                                |       | 29,117                                          |       | 32,356                       |       | 3,239                 |       | 11.1 |   |
| Income from operations                                                                                  |       | 16,040                                          |       | 18,058                       |       | 2,018                 |       | 12.6 |   |
| **OTHER INCOME (EXPENSE):**                                                                             | ** ** | ** **                                      | ** ** | ** **                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Interest expense                                                                                        |       | (661                                            | )          | (664                         | )          | (3                    | )          | 0.5 |   |
| Interest income                                                                                         |       | 517                                             |       | 410                          |       | (107                  | )          | (20.7 | ) |
| Other income, net                                                                                       |       | 1,514                                           |       | 143                          |       | (1,371                | )          | (90.6 | ) |
| Other income (expense), net                                                                             |       | 1,370                                           |       | (111                         | )          | (1,481                | )          | (108.1 | ) |
| **INCOME BEFORE INCOME TAXES, MINORITY INTERESTS  AND EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES** |       | 17,410                                          |       | 17,947                       |       | 537                   |       | 3.1 |   |
| Income taxes                                                                                            |       | 7,250                                           |       | 6,642                        |       | (608                  | )          | (8.4 | ) |
| **INCOME BEFORE MINORITY INTERESTS AND EQUITY IN  EARNINGS OF UNCONSOLIDATED AFFILIATES**               |       | 10,160                                          |       | 11,305                       |       | 1,145                 |       | 11.3 |   |
| Minority interests, net of tax                                                                          |       | (1,753                                          | )          | (1,373                       | )          | 380                   |       | 21.7 |   |
| Equity in earnings of unconsolidated affiliates, net of tax                                   |       | 642                                             |       | 272                          |       | (370                  | )          | (57.6 | ) |
| **NET INCOME**                                                                                          |       | $                                               | 9,049      |                         | $          | 10,204                |       | $ | 1,155 |   | 12.8 | % |

 

*Wirelessrevenue.*Wireless revenue includes wholesale voice and data roaming revenue from ourrural U.S. operations and retail wireless revenues generated in Guyana.  For 2008, wireless revenue also includesretail wireless revenues generated in Bermuda, effective May 15, 2008.

 

Wireless revenue increased to $24.8 million for thethree months ended June 30, 2008 from $19.9 million for the three monthsended June 30, 2007, an increase of $4.9 million, or 25%.

 

Notwithstanding the sale of 59 base stations duringthe fourth quarter of 2007, our rural U.S. business increased its revenues by$4.0 million, or 31%, to $16.9 million from $12.9 million for the quarter endedJune 30, 2008 and 2007, respectively. The increase in revenue from thisbusiness was due primarily to growth in voice and data traffic at existingsites as well as the continued deployment of additional GSM and CDMA wirelessbase stations that generated additional minutes of use and increased datarevenue.  Also included in this increasewas $0.7 million of switching fees earned on the 59 sold base stations. As of June 30,2008 a total of 367 base stations were deployed as compared to 309 basestations as of June 30, 2007. Of the 367 total base stations, all were GSMand CDMA base stations as of June 30, 2008, as compared to 263 GSM andCDMA base stations as of June 30, 2007.

 

The consolidation of our Bermuda subsidiary’soperating results contributed $2.9 million of the increase in wireless revenue.This increase reflects one and a half month’s operations of BDC, which became aconsolidated subsidiary on May 15, 2008.

 

The increase in wireless revenue from our rural U.S.operations and BDC was partially offset by a decline in wireless revenue inGuyana. As discussed previously, a large regional wireless operator entered themarket in late 2006 with aggressive marketing campaigns 

 

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and handset subsidies. This decline in revenue in the second quarter of 2008 reflects thecontinued impact of that competition, a decrease in rates and the introductionof per second billing in March 2007 for all wireless calls. Thisadditional competition in Guyana caused our wireless subscribers to decrease by28,000, or 9%, from 305,000 subscribers as of June 30, 2007 to 277,000subscribers as of June 30, 2008. These factors resulted in a $2.0 milliondecrease in GT&T’s wireless revenue from $7.0 million during the secondquarter of 2007 to $5.0 million during the same period of 2008.

 

We anticipate that our wireless revenue will continueto increase in future periods as a result of our increased interest in BDC,which is now consolidated into our results of operations, and from thecontinued growth of our rural U.S. operations. The increase in voice and datatraffic from our rural U.S. operations is likely be offset, in part, byscheduled and negotiated reductions in rates. We also anticipate that theswitching fees related to the 59 sold base stations will also decrease rapidlyand terminate by the end of 2008.  In ourGuyana retail wireless business, we expect that the network capacity andcoverage we have added will lead to increased traffic over time, although competitivepressures in the past year have caused a decline in our subscriber base whichmay limit future growth or even cause further decline.

 

*Local telephone and datarevenue.*Local telephone anddata revenue is generated by our wireline operations in Guyana, our integratedvoice and data operations in New England, and our data services in the U.S.Virgin Islands. This revenue includes basic service fees, measured servicerevenue, and internet access fees, as well as installation charges for newlines, monthly line rental charges, long distance or toll charges (excludinginternational long distance charges in Guyana), maintenance and equipmentsales.

* *

Local telephone and data revenue increased by $0.9million, or 8%, to $12.3 million for 2008 from $11.4 million for 2007. Theincrease is primarily attributable to growth in GT&T’s access lines inGuyana from approximately 124,000 lines as of June 30, 2007 toapproximately 135,000 lines as of June 30, 2008 (an increase of 9%),increased interconnect fees, growth in broadband data customers in Guyana andcontinued strong growth in wireless broadband customers in the U.S. VirginIslands.  While Sovernet continues to addbusiness customers for its voice and data services and improve profitability,its overall revenue remains largely unchanged because of the decline in itsresidential data business, particularly its dial-up internet services.  In future periods, we anticipate that localtelephone and data revenue will increase modestly as a result of network andsubscriber and access line growth in Guyana, the U.S. Virgin Islands and NewEngland.

 

*International long distance revenue.* International long distance revenue isgenerated by international telephone calls into and out of Guyana and does notinclude international long distance revenue generated by our other operations.Inbound traffic, which made up 86% of all international long distance trafficand more than 71% of international long distance revenue for the three monthsended June 30, 2008, is settled in U.S. dollars.

 

Internationallong distance revenue was $12.4 million during the second quarter, a decreaseof $0.4 million, or 3%, from $12.8 million in 2007. This decrease was partly aresult of certain significant events during the second quarter of 2007, such asGuyana’s hosting of Cricket World Cup matches and the Rio Group Summit, whichwe believe caused an increase in international traffic during that period.  The outcome of negotiations with theGovernment of Guyana regarding the exclusivity terms of GT&T’s license islikely to negatively impact this revenue in the future.  We are also subject to illegal bypass viainternet calling, which we believe increased considerably in 2008, and competeagainst alternative and cheaper media for communication, such as e-mail andtext messaging. These other modes of communication may cause a decline in bothvoice traffic and in international long distance revenues in future periods,although we may see a slight increase in traffic and revenues if we areeffective in combating illegal bypass.

 

*Other revenue*. Other revenuerepresents revenue from digital television services in the U.S. Virgin Islands,which remained at $1.0 million for 2008 and 2007. Our growth in revenue fromour wireless digital television services is expected to continue to slow in thefuture as a result of minimal anticipated future subscriber and market sharegrowth within our currently existing geographic footprint.

 

*Termination and access feeexpenses*. Termination and accessfee expenses are charges that we pay for voice and data transport circuits (inparticular, the circuits between our rural wireless sites and our switches),internet capacity and other access fees we pay to terminate our calls.

* *

*Termination and access fee expenses increased by $0.7million, or 9%, from $7.7 million to $8.4 million from 2007 to 2008,respectively as a result of increased traffic at Commnet and GT&T, as wellas the consolidation of BDC’s results of operations. These expenses areexpected to increase in future periods, but remain fairly consistent as comparedto their related revenues, as our rural wireless and CLEC operations in Vermontexpand.*

* *

*Internet and programmingexpenses.*Internet andprogramming expenses include internet connectivity charges and digitaltelevision programming.

* *

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* *

*Internet and programming expenses increased modestly from$0.8 million in 2007 to $0.9 million in 2008. This increase was primarily fromthe growth in our broadband data and television subscribers in the U.S. VirginIslands. We expect that internet and programming expenses will remain fairlyconsistent as a percentage of related revenues in the near future.*

* *

*Engineering and operations expenses.*Engineering and operations expensesinclude the expenses associated with developing, operating, supporting andexpanding our networks, including the salaries and benefits paid for employeesdirectly involved in the development and operation of our networks.

* *

Engineering and operations expenses increased by $0.2million, or 4%, from $5.7 million to $5.9 million for 2007 to 2008,respectively. This increase is primarily the result of the consolidation of theoperating results of our Bermuda subsidiary. We expect that engineering andoperations will continue to increase to further support our domestic andinternational networks.

 

*Sales and marketingexpenses.*Sales, marketing and customer service expenses includesalaries and benefits we pay for sales personnel, customer service expenses,sales commissions and the costs associated with the development andimplementation of our promotion and marketing campaigns.

* *

Sales and marketing expenses decreased by $0.7million, or 19%, from $3.6 million to $2.9 million from 2007 to 2008,respectively. During the second quarter of 2007, GT&T incurred an unusuallyhigh level of sales and marketing costs in response to increased wirelesscompetition, including wireless handset promotions, increased advertising andhigher sales commissions.  In 2008,GT&T’s sales and marketing expenses returned to a lower level.  While we do not think that these expenses arelikely to return to second quarter 2007 levels, it is hard to predict changesin the competitive environment and therefore there may be large fluctuations inthese expenses in future periods.  Thedecrease in GT&T’s sales and marketing expenses was partially offset by BDC’ssales and marketing expenses which we began to consolidate effective May 15,2008.

 

*General and administrativeexpenses.*General and administrative expenses include salaries,benefits and related costs for general corporate functions, including executivemanagement, finance and administration, legal and regulatory, facilities,information technology and human resources.

* *

*General and administrative expenses increased $1.2 million,or 21%, from $5.6 million to $6.8 million from 2007 to 2008.  The consolidation of BDC’s operating resultsadded $0.8 million of the increase.  Weexpect general and administrative expenses to increase in the future to supportour growth but remain fairly consistent as compared to our consolidatedrevenues.*

* *

*Depreciation and amortizationexpenses.*Depreciation and amortization expenses represent the depreciation and amortizationcharges we record on our property and equipment and on our intangible assets.

 

Depreciation and amortization expenses increased by$0.7 million, or 10%, from $6.7 million to $7.4 million for 2007 and 2008,respectively. The increase is primarily due to the addition of fixed assetsfrom our network expansion in our rural U.S. wireless business and Guyana. Weexpect that depreciation and amortization expenses will increase in thenear-term, because of continued capital expenditures to expand our networks.

 

*Gain on disposition of long-livedassets.* During the second quarter of 2007, our rural U.S. wireless operationssold certain assets resulting in a gain on such sale of $1.0 million.

 

*Interest expense.* Interest expense represents interestincurred on our outstanding debt including our $50.0 million term loan as wellany outstanding amounts under our $20.0 million revolving line of creditfacility.  Interest expense remained at$0.7 million from 2007 to 2008.  We hadno outstanding borrowings under our revolving line of credit during the secondquarters of 2007 and 2008.

 

*Interest income*. Interest income represents interestearned on our cash, cash equivalent and marketable securities.

 

Interest income decreased $0.1 million from $0.5 million for second quarterof 2007 to $0.4 million in 2008.  Thedecrease was a result of a decrease in the interest earned on cash andinvestments.

 

*Other income (expense).*Other income (expense) representsmiscellaneous non-operational income we earned, or expenses we incurred,including management fees received from BDC. Other income decreased from $1.5million in 2007 to $0.1 million in 2008 as a result of a $1.3 million licensesettlement received by Commnet during 2007, and accounting for the eliminationin consolidation of BDC management fees after May 15, 2008.  We expect other income to decrease in thefuture as a result of the consolidation accounting.

 

*Incometaxes.***Incometaxes represent taxes we pay on our net taxable income.

 

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Theeffective tax rate was 42% for 2007 and 37% for 2008.  Income tax expense includes tax at thestatutory U.S. federal and state income tax rates as well as the Guyaneseincome taxes in excess of the statutory U.S. income tax rates. The effectivetax rate is impacted by the receipt of foreign dividends and by theamortization of a deferred tax asset, relating to differences between book andtax basis of fixed assets, which was recorded in a prior period. For the threemonths ended June 30, 2008, the effective tax rate was positively impactedby the consolidation of the operating results of BDC (which operates in ano-tax jurisdiction), growth in taxable income in our U.S. operations andreduced losses in the U.S. Virgin Islands. We expect that our effective tax rate will be reduced over time if weare able to continue reducing losses in the US Virgin Islands and grow taxableincome at our newer U.S. operations. Consolidation of a full period of theoperating results of BDC will also reduce this tax rate.

 

*Minority interests.*Minorityinterests consists of the Guyana government’s 20% interest in GT&T, aminority shareholder’s 4% interest in Sovernet, minority shareholders’ 42%equity interest in BDC effective May 15, 2008 upon our increased equityinterest in BDC and our consolidation of its operating results and otherminority shareholders’ interests in certain consolidated subsidiaries ofCommnet. Minority interests decreased from $1.8 million to $1.4 million for2007 and 2008, respectively, as a result of a decrease in net income atGT&T.

 

*Equity in earnings of unconsolidated affiliates.* Equity inearnings of unconsolidated affiliates included our share of the earnings of BDCprior to our consolidation of BDC’s operating results in May 2008, as wellas our share of the earnings of Commnet’s unconsolidated affiliates. Equity inearnings of unconsolidated affiliates decreased from $0.6 million for 2007 to $0.3million for 2008 as a result of the consolidation of BDC’s operating results.We expect equity in earnings of unconsolidated affiliates to decrease in futureperiods as the result of the consolidation of BDC’s operating results.

 

*Net income.*As a result of the above factors, netincome increased by $1.2 million or 13% from $9.0 million for 2007 to $10.2million for 2008. On a per share basis, net income increased from $0.60 perbasic and $0.59 per diluted share to $0.67 per basic and diluted share from2007 to 2008, respectively.

 

*Segment results.*We have five materialoperating segments, which we manage and evaluate separately: (1) IntegratedTelephony — International; (2) Rural Wireless; (3) Island Wireless; (4) IntegratedTelephony — Domestic; and (5) Wireless Television and Data. IslandWireless became a reportable segment upon completion of BDC’s share repurchaseand resulting increase in our equity interest in BDC, effective May 15,2008.  Segment results are set forth inNote 10 “Segment Reporting” to the Consolidated Financial Statements includedin this Report.

 

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*** ***

***Six Months Ended June 30,2008 and 2007***

 
| ** **                                                                                              | ** ** | **Six Months Ended  June 30,** | ** ** | **Amount of  Increase** | ** ** | **Percent  Increase** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|------------------------------|------------|-----------------------|------------|
| ** **                                                                                              | ** ** | **2007**                                      | ** ** | **2008**                     | ** ** | **(Decrease)**        | ** ** | **(Decrease)** | ** ** |
| ** **                                                                                              | ** ** | ** **                                    | ** ** | **(In thousands)**      | ** ** | ** **            | ** ** |
| **REVENUE:**                                                                                            |       |                                          |       |                         |       |                  |       |   |   |
| Wireless                                                                                                |       | $                                             | 38,587     |                         | $          | 44,539                |       | $ | 5,952 |   | 15.4 | % |
| Local telephone and data                                                                                |       | 22,506                                        |       | 24,514                       |       | 2,008                 |       | 8.9 |   |
| International long distance                                                                             |       | 25,974                                        |       | 24,942                       |       | (1,032                | )          | (4.0 | ) |
| Other                                                                                                   |       | 2,010                                         |       | 2,049                        |       | 39                    |       | 1.9 |   |
| Total revenue                                                                                           |       | 89,077                                        |       | 96,044                       |       | 6,967                 |       | 7.8 |   |
| **OPERATING EXPENSES:**                                                                                 | ** ** | ** **                                    | ** ** | ** **                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Termination and access fees                                                                             |       | 14,255                                        |       | 15,964                       |       | 1,709                 |       | 12.0 |   |
| Internet and programming                                                                                |       | 1,666                                         |       | 1,762                        |       | 96                    |       | 5.8 |   |
| Engineering and operations                                                                              |       | 11,473                                        |       | 11,785                       |       | 312                   |       | 2.7 |   |
| Sales and marketing                                                                                     |       | 8,738                                         |       | 5,618                        |       | (3,120                | )          | (35.7 | ) |
| General and administrative                                                                              |       | 11,489                                        |       | 12,702                       |       | 1,213                 |       | 10.6 |   |
| Depreciation and amortization                                                                           |       | 13,159                                        |       | 14,501                       |       | 1,342                 |       | 10.2 |   |
| Gain on disposition of long-lived assets                                                                |       | (1,176                                        | )          | —                       |       | 1,176                 |       | 100.0 |   |
| Total operating expenses                                                                                |       | 59,604                                        |       | 62,332                       |       | 2,728                 |       | 4.6 |   |
| Income from operations                                                                                  |       | 29,473                                        |       | 33,712                       |       | 4,239                 |       | 14.4 |   |
| **OTHER INCOME (EXPENSE):**                                                                             | ** ** | ** **                                    | ** ** | ** **                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Interest expense                                                                                        |       | (883                                          | )          | (1,316                       | )          | (433                  | )          | (49.0 | ) |
| Interest income                                                                                         |       | 1,108                                         |       | 978                          |       | (130                  | )          | (11.7 | ) |
| Other income, net                                                                                       |       | 1,768                                         |       | 368                          |       | (1,400                | )          | (79.2 | ) |
| Other income (expense), net                                                                             |       | 1,993                                         |       | 30                           |       | (1,963                | )          | (98.5 | ) |
| **INCOME BEFORE INCOME TAXES, MINORITY INTERESTS  AND EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES** |       | 31,466                                        |       | 33,742                       |       | 2,276                 |       | 7.2 |   |
| Income taxes                                                                                            |       | 13,914                                        |       | 14,032                       |       | 118                   |       | 0.8 |   |
| **INCOME BEFORE MINORITY INTERESTS AND EQUITY IN  EARNINGS OF UNCONSOLIDATED AFFILIATES**               |       | 17,552                                        |       | 19,710                       |       | 2,158                 |       | 12.3 |   |
| Minority interests, net of tax                                                                          |       | (2,703                                        | )          | (2,374                       | )          | 329                   |       | 12.2 |   |
| Equity in earnings of unconsolidated affiliates, net of tax                                   |       | 1,098                                         |       | 735                          |       | (363                  | )          | (33.1 | ) |
| **NET INCOME**                                                                                          |       | $                                             | 15,947     |                         | $          | 18,071                |       | $ | 2,124 |   | 13.3 | % |

 

*Wireless revenue*.  Wirelessrevenue increased to $44.5 million for the six months ended June 30, 2008from $38.6 million for the six months ended June 30, 2007, an increase of$5.9 million, or 15%.

 

Notwithstanding the sale of 59 base stations duringthe fourth quarter of 2007, our rural U.S. business increased its revenues by$6.6 million, or 27%, to $31.4 million from $24.8 million. The increase inrevenue from our U.S. wireless business was due primarily to growth in voiceand data traffic at existing sites, as well as the continued deployment ofadditional GSM and CDMA wireless base stations that generated additionalminutes of use and increased data revenue. Also included in this increase was $1.6 million of switching fees earnedon the 59 sold base stations. As of June 30, 2008 a total of 367 basestations were deployed as compared to 309 base stations as of June 30,2007. Of the 367 total base stations, all were GSM and CDMA base stations as ofJune 30, 2008, as compared to 263 GSM and CDMA base stations as of June 30,2007.

 

The consolidation of our Bermuda subsidiary’soperating results contributed $2.9 million of the increase in wireless revenue.This increase reflects one and a half month’s operations of BDC, which became aconsolidated subsidiary on May 15, 2008.

 

The increase in wireless revenue from our rural U.S.operations and BDC was partially offset by a decline in wireless revenue inGuyana. As discussed previously, a large regional wireless operator entered themarket in late 2006 with aggressive marketing campaigns and handsetsubsidies.  This decline in revenue inthe first six months of 2008 reflects the continued impact of that competition,a decrease in rates and the introduction of per second billing in March 2007for all wireless calls. This additional competition in Guyana caused ourwireless subscribers to decrease by 28,000, or 9%, from 305,000 subscribers asof June 30, 2007 to 277,000 subscribers as of June 30, 2008,respectively. These factors resulted in a $3.6 million decrease in GT&T’swireless revenue from $13.8 million during the first six months of 2007 to$10.2 million during the same period of 2008.

 

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* *

*Local telephone and datarevenue.*Local telephone anddata revenue increased by $2.0 million, or 9%, to $24.5 million for 2008 from$22.5 million for 2007. The increase is primarily attributable to growth inGT&T’s access lines in Guyana from approximately 124,000 lines as of June 30,2007 to approximately 135,000 lines as of June 30, 2008 (an increase of9%), increased interconnect fees, growth in broadband data customers in Guyanaand continued strong growth in wireless broadband customers in the U.S. VirginIslands.  While Sovernet continues to addbusiness customers for its voice and data services and improve profitability,its overall revenue remains largely unchanged because of the decline in itsresidential data business, particularly its dial-up internet services.

* *

*International long distancerevenue. *International long distance revenue was $24.9 millionduring the six months ended June 30, 2008, a decrease of $1.1 million, or4%, from $26.0 million in 2007. This decrease was partly a result of certainsignificant events during the six months ended June 30, 2007, such as therun up to Guyana’s hosting of Cricket World Cup matches and the Rio GroupSummit, which we believe increased traffic volumes during that period.  We are also subject to illegal bypass viainternet calling, which we believe increased considerably in the second quarterof 2008 and compete against alternative and cheaper media for communication,such as e-mail and text messaging. These other modes of communication may causea decline in both voice traffic and in international long distance revenues infuture periods, although we may see a slight increase in traffic and revenuesif we are effective in combating illegal bypass.  The outcome of negotiations with theGovernment of Guyana regarding the exclusivity terms of GT&T’s license isalso likely to negatively impact this revenue in the future.

 

*Other revenue*. Other revenuerepresents revenue from digital television services in the U.S. Virgin Islands,which remained constant at $2.0 million for 2008 and 2007. Our growth inrevenue from our wireless digital television services is expected to continueto slow in the future as a result of minimal anticipated future subscriber andmarket share growth within our currently existing geographic footprint.

 

*Termination and access feeexpenses*. Termination and accessfee expenses increased by $1.7 million, or 12%, from $14.3 million to $16.0million from 2007 to 2008, respectively as a result of increased traffic(minutes) at Commnet and GT&T, as well as the consolidation of BDC.

* *

*Internet and programmingexpenses.*Internet andprogramming expenses increased modestly from $1.7 million in 2007 to $1.8million in 2008. This increase was primarily from the growth in our broadbanddata and television subscribers in the U.S. Virgin Islands.

* *

*Engineering and operationsexpenses.*Engineering andoperations expenses increased by $0.3 million, or 3%, from $11.5 million to$11.8 million for 2007 to 2008, respectively. This increase is primarily theresult of the expansion of our wireless networks in the United States andGuyana as well as the consolidation of BDC.

* *

Sales and marketingexpenses. Sales andmarketing expenses decreased by $3.1 million, or 36%, from $8.7 million to $5.6million from 2007 to 2008, respectively. During the first six months of 2007,GT&T incurred an unusually high level of sales and marketing costs as aresponse to increased wireless competition, including wireless handsetpromotions, increased advertising and higher sales commissions.  In 2008, GT&T’s sales and marketingexpenses returned to a lower level.  Thedecrease in GT&T’s sales and marketing expenses was partially offset by BDC’ssales and marketing expenses which we began to consolidate effective May 15,2008.

 

*General and administrativeexpenses.*General and administrative expenses increased $1.2 million,or 10%, from $11.5 million in 2007 to $12.7 million in 2008.  The consolidation of our Bermuda subsidiarycontributed $0.8 million to this increase.

* *

*Depreciation and amortizationexpenses.*Depreciation and amortization expenses increased by $1.3 million, or 10%, from$13.2 million to $14.5 million for 2007 and 2008, respectively. The increase isprimarily due to the addition of fixed assets from our network expansion in ourrural U.S. wireless business and Guyana.

 

*Gain on disposition of long-livedassets.* During the six months ended June 30, 2007, our rural U.S. wirelessoperations sold certain assets resulting in a gain on such sales of $1.2million.

 

*Interest expense.* Interest expense increased from $0.9million for 2007 to $1.3 million for 2008. The increase in interest expense wasdue to a patronage credit adjustment received from our senior lender in thefirst quarter of 2007. We had no outstanding borrowings under our revolvingline of credit during the second quarters of 2007 and 2008.

 

*Interest income*. Interest income decreased $0.1 million, or 9% from $1.1 million in 2007to $1.0 million in 2008.  The reductionis a result of a decrease in the interest earned on cash and investments forthe first six months of 2008.

 

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*Other income (expense).*Other income decreased from $1.8 millionin 2007 to $0.4 million in 2008 as a result of a $1.3 million licensesettlement at Commnet during 2007, as well as a decrease in management feesfrom BDC.

 

*Incometaxes.*** The effective tax rate was 44% for 2007 and42% for 2008.  Income tax expenseincludes tax at the statutory U.S. federal and state income tax rates as wellas the Guyanese income taxes in excess of the statutory U.S. income tax rates.The effective tax rate is impacted by the receipt of foreign dividends and bythe amortization of a deferred tax asset, relating to differences between bookand tax basis of fixed assets, which was recorded in a prior period. For thesix months ended June 30, 2008, the effective tax rate was negativelyimpacted by an increase in foreign dividends as compared to the same period in2007.

 

*Minority interests.*Minorityinterests consists of the Guyana government’s 20% interest in GT&T, aminority shareholder’s 4% interest in Sovernet, minority shareholders’ 42%equity interest in BDC effective May 15, 2008 upon our increased equityinterest in BDC and our consolidation of its operating results and otherminority shareholders’ interests in certain consolidated subsidiaries ofCommnet. Minority interests decreased from $2.7 million to $2.4 million for2007 and 2008, respectively.

 

*Equity in earnings of unconsolidated affiliates.* Equity inearnings of unconsolidated affiliates decreased $0.4 million, or 36% from $1.1million for 2007 to $0.7 million for 2008 as a result of the consolidation ofBDC.

 

*Net income.*As a result of the above factors, netincome increased by $2.2 million or 14% from $15.9 million for 2007 to $18.1million for 2008. On a per share basis, net income increased from $1.05 perbasic and $1.04 per diluted share to $1.19 per basic and $1.18 per dilutedshare from 2007 to 2008, respectively.

 

*Segment results.*We have five materialoperating segments, which we manage and evaluate separately: (1) IntegratedTelephony — International; (2) Rural Wireless; (3) Island Wireless;(4) Integrated Telephony — Domestic; and (5) Wireless Television andData. Island Wireless became a reportable request upon completion of BDC’sshare repurchase and resulting increase in the Company’s equity interest inBDC, effective May 15, 2008. Segment results are set forth in Note 10 “Segment Reporting” to theConsolidated Financial Statements included in this Report.

 

**Regulatory and Tax Issues**

** **

We are involved in a number of regulatory and taxproceedings. See Note 12 to theConsolidated Financial Statements included in this Report. A material andadverse outcome in one or more of these proceedings could have a materialadverse impact on our financial condition and future operations.

 

**Liquidity and CapitalResources**

** **

We have met our operational liquidity needs through acombination of cash on hand and internally generated funds and have fundedcapital expenditures and acquisitions with a combination of internally generatedfunds, cash on hand and borrowings under our credit facility.

 

***Usesof Cash***

*** ***

*Capital Expenditures.*A significant use ofour cash has been for capital expenditures for expanding and upgrading ournetworks. For the six months ended June 30, 2007 and 2008, we spentapproximately $18.3 million and $20.9 million on capital expenditures,respectively.  Of the $20.9 million of2008 capital expenditures, we spent approximately $14.5 million expandingCommnet’s network by increasing the number of GSM and CDMA base stations aswell as switching and cell site equipment required to expand our geographiccoverage and technical capabilities. In addition, approximately $5.9 millionwas incurred expanding the capacity and coverage of our wireline and wirelessnetwork in Guyana. We also spent $0.3 million at Sovernet and expanded ourservice areas and switch capabilities. In addition, during the first quarter of 2008, we were awarded the rightto acquire, for $3.0 million, certain spectrum in connection with our participationin the FCC’s auction (FCC Auction No. 73) of 700 MHz spectrum beingre-claimed by the FCC from the broadcast industry and sold by the FCC to thewireless industry.  This amount isincluded in Other Assets in our consolidated balance sheet as of June 30,2008; it will be reclassified to Licenses, and considered a capitalexpenditure, upon the finalization of such award, scheduled to occur during thefirst quarter of 2009.

* *

We are continuing to invest in expanding our networksin Guyana, Commnet, Sovernet and Bermuda and expect to incur capitalexpenditures between $40 million and $45 million, with approximately two-thirdsused in connection with Commnet’s network expansion during the year ended December 31,2008. While final plans and costs are not yet complete, we could incur up to anadditional $10 million of capital expenditures in 2008 above this range as wecontinue to move forward with plans to land a submarine fiber optic cable inGuyana. Our total capital expenditures associated with this project over thenext 18 months are expected to range from $20 million to $30 million. We expectto fund these expenditures from cash generated from our operations.

 

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*Acquisitions andInvestments.*We have funded our recent acquisitions with a combination ofcash on hand and borrowings under our $70 million credit facility.

* *

*During January 2007, we purchased the remaining 5%equity interest in Commnet for $6.5 million and 21,000 shares of our commonstock in satisfaction of our obligation (and in accordance with our right)under and consistent with the terms of the agreement entered into in connectionwith our acquisition of Commnet in September 2005. We funded this purchasewith cash on hand and the reissuance of shares held in our treasury.*

* *

On May 15, 2008, our equity interest in BDCincreased from 43% to 58% as a result of BDC’s repurchase of $17.0 million of sharesfrom other shareholders.  We funded thetransaction with cash on hand.

* *

*We continue to explore opportunities to acquirecommunications properties or licenses in the Caribbean, the United States andelsewhere. We also explore opportunities to substantially expand our existingnetworks in the United States and the Caribbean including the plan to land asubmarine cable to Guyana as mentioned earlier. Such acquisitions may requireexternal financing. While there can be no assurance as to whether, when or onwhat terms we will be able to acquire any such businesses or licenses, suchacquisitions may be accomplished through the issuance of shares, payment ofcash or incurrence of additional debt.*

* *

*Dividends.*We use cash on hand tomake dividend payments to our common stockholders when declared by our Board ofDirectors. For the six months ended June 30, 2008, our dividends to ourstockholders approximated $4.9 million (which reflects dividends paid on July 10,2008). We have paid quarterly dividends for the last 39 fiscal quarters.

* *

*Stock Repurchase Plan*. Our Board ofDirectors approved a $5.0 million stock buyback plan in September 2004pursuant to which we have spent to date $2.1 million repurchasing commonstock.  During the second quarter of2008, we repurchased 42,351 shares for $1.2 million. We may repurchase sharesat any time depending on market conditions, our available cash and our cashneeds.

* *

***Sourcesof Cash***

*** ***

*Total Liquidity at June 30,2008*. As of June 30,2008, we had approximately $55.1 million in cash and cash equivalents, adecrease of $16.1 million from the December 31, 2007 balance of $71.2million. In addition, as of June 30, 2008, we had $5.4 million inshort-term marketable securities.  Webelieve our existing cash balances and other capital resources, including the$20.0 million available under our revolving line of credit included in ourcredit facility, are adequate to meet our current operating and capital needs.

* *

*Cash Generated byOperations.*Cash provided byoperating activities was $19.3 million for the six months ended June 30,2008 compared to $28.5 million for the six months ended June 30,2007.  The decrease of $9.2 million wasdue to a $3.0 million deposit made in connection with FCC Auction No. 73as discussed above and the timing of certain domestic income tax payments.

* *

***Credit Facility.***    OnSeptember 15, 2005, Atlantic Tele-Network entered into a Credit Agreementwith CoBank, ACB providing for a credit facility consisting of a$50 million term loan and a $20 million revolving credit facility.Under the term loan, repayments of principal are deferred until the maturity ofthe loan on October 31, 2010. Interest on the term loan is payable on aquarterly basis at a fixed annual interest rate of 5.85%. Because CoBank is acooperative financial institution, we expect to receive patronage paymentsannually, and at the end of the term, from CoBank which reflect our portion ofCoBank’s profits, if any. These payments, if received, are expected to reduceour effective interest expense on the term loan.

*** ***

***FactorsAffecting Sources of Liquidity***

*** ***

*Internally Generated Funds.*    The key factorsaffecting our internally generated funds are demand for our services,competition, regulatory developments, economic conditions in the markets wherewe operate our businesses and industry trends within the telecommunicationsindustry. For a discussion of tax and regulatory risks in Guyana that couldhave a material adverse impact on our liquidity, see “Business—RiskFactors—Risks Relating to Our Wireless and Wireline Services in Guyana” in our2007 Form 10-K, “—Regulation of Our GT&T Subsidiary” in our 2007 Form 10-Kand Note 12  to the ConsolidatedFinancial Statements included in this Report.

 

*Guyana—U.S. Foreign Currency Exchange.*    GT&T’s functional currency is theU.S. dollar because a majority of GT&T’s revenues and expenditures havehistorically been transacted in U.S. dollars. Since 2004 through March 2008,the value of the Guyana dollar has remained at $205 Guyana dollars to one U.S.dollar so we have not experienced any foreign currency gains or losses duringthose periods. If this exchange rate was to fluctuate in the future, this wouldaffect our results of operations to the extent we are required to remeasure anymonetary assets or liabilities denominated in Guyana dollars. Moreover, withthe potential for competition in international services in the future, combinedwith the increases that GT&T hopes to have in local revenue which is billedin Guyana dollars, it is 

 

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possible that the Guyanadollar will become GT&T’s functional currency at some point in the future.This would further expose us to foreign currency risk in the event of exchangerate fluctuations.

 

GT&T generallyendeavors to maintain a balance between its Guyana dollar cash deposits andlocal receivables which are denominated in Guyana dollars and its local tax andother payables which are also denominated in the Guyana dollar. As of June 30,2008, GT&T maintained U.S. $8.8 million of its cash balances in Guyanadollars. See “Quantitative and Qualitative Disclosures about Market Risk.”

 

*Restrictions Under Credit Facility.***Our credit facility contains four financial tests withwhich Atlantic Tele-Network must comply:

 

·       a total leverage ratio (debt to EBITDA)of 2.00 to 1.00 or less;

 

·       a debt service coverage ratio (EBITDA todebt service) of 3.00 to 1.00 or more; and

 

·       an equity to assets ratio of 0.40 to 1.00or more.

 

In addition, Commnet must comply with a leverage ratiotest (debt of Atlantic Tele-Network and its subsidiaries, net of pledged cash,to EBITDA of Commnet and its subsidiaries) of 5.00 to 1.00. As of June 30,2008, we were in compliance with the covenants of the credit facility.

 

***CapitalMarkets.***   Our ability to raisefunds in the capital markets depends on, among other things, general economicconditions, the conditions of the telecommunications industry, our financialperformance and the state of the capital markets. In June 2006, theSecurities and Exchange Commission declared effective a “universal” shelfregistration statement filed by the Company. This shelf registration statementregistered the potential future offerings by us, from time to time, of up to anaggregate of $200 million of our securities, consisting potentially ofcommon stock, debt securities, and other equity and convertible securities andcombinations of the foregoing. Following our July 2006 equity offering whichwas conducted pursuant to the shelf registration statement, we haveapproximately $150 million of securities registered for potential futureofferings.

*** ***

***Inflation***

*** ***

We do not believe that inflation has had a significantimpact on our consolidated operations in any of the periods presented in theReport.

 

***RecentAccounting Pronouncements***

*** ***

EffectiveJanuary 1, 2008, we implemented Statement of Financial Accounting StandardNo. 157, *Fair Value Measurement*(“SFAS 157”), for our financial assets and liabilities that arere-measured and reported at fair value at each reporting period, andnon-financial assets and liabilities that are re-measured and reported at fairvalue at least annually. In accordance with the provisions of FASB staffposition No. FAS 157-2, *EffectiveDate of FASB Statement No. 157,*we have elected to deferimplementation of SFAS 157 as it relates to all of our non-financialassets and non-financial liabilities that are recognized and disclosed at fairvalue in the financial statements on a nonrecurring basis until January 1,2009. We are evaluating the impact, if any, this standard will have on ournon-financial assets and liabilities. The adoption of SFAS 157 to ourfinancial assets and liabilities and non-financial assets and liabilities thatare re-measured and reported at fair value at least annually did not have amaterial impact on our financial results.

 

EffectiveJanuary 1, 2008, we adopted SFAS No. 159, The Fair Value Option forFinancial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 permitsentities to choose to measure certain financial instruments and other eligibleitems at fair value when the items are not otherwise currently required to bemeasured at fair value. Upon adoption, we did not elect the fair value option forany new items within the scope of SFAS 159 and, therefore, the adoption of SFAS159 did not have an impact on our consolidated financial statements.

 

In June 2008,the FASB issued FASB Staff Position (FSP) No. EITF 03-6-1, DeterminingWhether Instruments Granted in Share-Based Payment Transactions AreParticipating Securities (“FSP No. EITF 03-6-1”). Under the provisions ofthis standard, unvested awards of share-based payments with non-forfeitablerights to receive dividends or dividend equivalents are consideredparticipating securities for purposes of calculating earnings per share. FSPNo. EITF 03-6-1 is effective for financial statements issued for fiscalyears and interim periods beginning after December 15, 2008. As theCompany’s unvested awards of share-based payments’ rights to receive dividendsor dividend equivalents are forfeitable, the Company does not expect theadoption of FSP No. EITF 03-6-1 to have a material impact on itsconsolidated financial statements.

 

In May 2008,the FASB issued FAS No. 162, The Hierarchy of Generally AcceptedAccounting Principles (“SFAS 162”). SFAS No. 162 identifies the sources ofaccounting principles and the framework for selecting the principles used inthe preparation of financial statements of nongovernmental entities that arepresented in conformity with generally accepted accounting principles (the GAAPhierarchy). SFAS No. 162 will become effective 60 days following theSEC’s approval of the Public Company Accounting Oversight Board amendments toAU Section 411, The Meaning of Present Fairly in Conformity With GenerallyAccepted Accounting Principles. The Company does not expect the adoption ofSFAS No. 162 to have a material effect on its results of operations andfinancial position.

 

 

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InApril 2008, the FASB issued FSP No. 142-3, Determination of theUseful Life of Intangible Assets (“FSP 142-3”), which amends the factors thatmust be considered in developing renewal or extension assumptions used todetermine the useful life over which to amortize the cost of a recognizedintangible asset under SFAS 142. FSP 142-3 amends paragraph 11(d) of SFAS142 to require an entity to consider its own assumptions about renewal orextension of the term of the arrangement, consistent with its expected use ofthe asset.

 

The FSP alsorequires the following incremental disclosures for renewable intangible assets:

 
|   | · | The weighted-average  period prior to the next renewal or extension (whether explicit and implicit)  for each major intangible asset class |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                       |
|   | · | The entity’s accounting  policy for the treatment of costs incurred to renew or extend the term of a  recognized intangible asset     |
|   |   |                                                                                                                                       |
|   | · | For intangible asset  renewed or extended during the period:                                                                               |
|   |   |                                                                                                                                       |
|   |   | ·                                                                                                                                     | For entities that  capitalize renewal or extension costs, the costs incurred to review or extend  the asset, for each major intangible asset class |
|   |   |                                                                                                                                       |   |
|   |   | ·                                                                                                                                     | The weighted-average  period prior to the next renewal or extension (whether explicit and implicit)  for each major intangible asset class. |

 

FSP 142-3 iseffective for financial statements for fiscal years beginning afterDecember 15, 2008. The guidance for determining the useful life of arecognized intangible asset must be applied prospectively to intangible assets acquiredafter the effective date. Early adoption is prohibited. Accordingly, FSP 142-3would not serve as a basis to change the useful life of an intangible assetthat was acquired prior to the effective date (January 1, 2009 for acalendar year company). However, the incremental disclosure requirementsdescribed above would apply to all intangible assets, including thoserecognized in periods prior to the effective date of FSP 142-3. The Company iscurrently evaluating the impact that the adoption of FSP 142-3 will have on itsconsolidated financial statements.

 

InMarch 2008, the FASB issued SFAS No. 161, Disclosures aboutDerivative Instruments and Hedging Activities - an amendment of FASB StatementNo. 133 (“SFAS 161”).  SFAS 161 amends and expands the disclosurerequirements of Statement 133 to provide a better understanding of how and whyan entity uses derivative instruments, how derivative instruments and relatedhedged items are accounted for, and their effect on an entity’s financialposition, financial performance, and cash flows.  SFAS 161 iseffective for fiscal years beginning after November 15, 2008.  As of June 30, 2008, we did not have anyderivative instruments and do not expect that the adoption of SFAS 161 willhave any impact on our consolidated financial statements.

 

InDecember 2007, the FASB issued SFAS No. 141 (revised 2007), BusinessCombinations (“SFAS 141R”). SFAS 141R addresses the recognition and accountingfor identifiable assets acquired, liabilities assumed, and noncontrolling interestsin business combinations. SFAS 141R also establishes expanded disclosurerequirements for business combinations. SFAS 141R is effective for us onJanuary 1, 2009, and we will apply SFAS 141R prospectively to all businesscombinations subsequent to the effective date. We are currently evaluating the impact that the adoption of SFAS 141Rwill have on our consolidated financial statements.

 

InDecember 2007, the FASB issued SFAS No. 160, Noncontrolling Interestsin Consolidated Financial Statements - an amendment of ARB No. 51 (“SFAS160”). SFAS 160 establishes accounting and reporting standards for thenoncontrolling interest in a subsidiary and for the deconsolidation of a  subsidiary.  SFAS 160 requires thatnoncontrolling interests in subsidiaries be reported in the equity section ofthe controlling company’s balance sheet. It also changes the manner in whichthe net income of the subsidiary is reported and disclosed in the controllingcompany’s income statement. SFAS 160 is effective for fiscal years beginningafter December 15, 2008. We are currently evaluating the impact that theadoption of SFAS 160 will have on our consolidated financial statements.

 

**Item 3. Quantitative and Qualitative Disclosures aboutMarket Risk**

 

*ForeignCurrency -*GT&T’s functional currency is the U.S. dollar because a majority ofGT&T’s revenues and expenditures have historically been transacted in U.S.dollars. Since 2004 through March 2008, the value of the Guyana dollar hasremained at $205 Guyana dollars to one U.S. dollar so we have not experiencedany foreign currency gains or losses during those periods. If this exchangerate was to fluctuate in the future, this would affect our results ofoperations to the extent we are required to remeasure any monetary assets or liabilitiesdenominated in Guyana dollars. Moreover, with the potential for competition ininternational services in the future, combined with the increases that GT&Thopes to have in local revenue which is billed in Guyana dollars, it ispossible that the Guyana dollar will become GT&T’s functional currency atsome point in the future. This would further expose us to foreign currency riskin the event of exchange rate fluctuations.

 

GT&T generallyendeavors to maintain a balance between its Guyana dollar cash deposits andlocal receivables which are denominated in Guyana dollars and its local tax andother payables which are also denominated in the Guyana dollar. As of June 30,2008, GT&T maintained U.S. $8.8 million of its cash balances in Guyanadollars.

 

*InterestRates -* Wemaintain a portion of our cash and cash equivalents in short-term financialinstruments that are subject to interest rate fluctuations. Due to therelatively short duration of such instruments and the fact that we have novariable rate debt, we believe that fluctuations in interest rates will notmaterially affect our financial condition or results of operations.  

 

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**Item 4. Controls and Procedures**

 

*Evaluation of disclosure controls and procedures.*Our management,with the participation of our principal executive officer and principalfinancial officer, evaluated the effectiveness of our disclosure controls andprocedures as of June 30, 2008. The term “disclosure controls andprocedures,” as defined in Rules 13a-15(e) and 15d-15(e) underthe Exchange Act, means controls and other procedures of a company that aredesigned to ensure that information required to be disclosed by a company inthe reports that it files or submits under the Exchange Act is recorded,processed, summarized and reported, within the time periods specified in theSEC’s rules and forms. Disclosure controls and procedures include, withoutlimitation, controls and procedures designed to ensure that informationrequired to be disclosed by a company in the reports that it files or submitsunder the Exchange Act is accumulated and communicated to the company’smanagement, including its principal executive and principal financial officers,as appropriate to allow timely decisions regarding required disclosure.Management recognizes that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving theirobjectives and management necessarily applies its judgment in evaluating thecost-benefit relationship of possible controls and procedures. Based on theevaluation our disclosure controls and procedures as of June 30, 2008, ourprincipal executive officer and principal financial officer concluded that, asof such date, our disclosure controls and procedures were effective at thereasonable assurance level.

 

*Changes in internal control over financial reporting.*There was nochange in the internal control over financial reporting that occurred duringthe three months ended June 30, 2008 that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

 

**PART II—OTHERINFORMATION**

 

**Item 1. Legal Proceedings**

 

See Note 12 to the Consolidated Financial Statementsincluded in this Report.

 

**Item 1A. Risk Factors**

 

In addition to the other information set forth in thisReport, you should carefully consider the factors discussed in Part I, “Item1A. Risk Factors” in our 2007 Form 10-K, which could materially affect ourbusiness, financial condition or future results. The risks described in our2007 Form 10-K are not the only risks facing our Company. Additional risksand uncertainties not currently known to us or that we currently deem to beimmaterial also may materially adversely affect our business, financialcondition and/or operating results.

 

**Item 2.    Unregistered Sales of Equity Securities andUse of Proceeds**

 

In September 2004, the Board of Directors authorizedthe Company to repurchase up to $5.0 million of common stock. The repurchaseauthorizations do not have a fixed termination date and the timing of the buyback amounts and exact number of shares purchased will depend on market conditions.

 

The following table reflects the repurchases by theCompany of its common stock during the quarter ended June 30, 2008:

 

| **Period**                          | ** ** | **(a)  Total Number  of Shares  Purchased** | ** ** | **(b)  Average  Price  Paid per  Share** | ** ** | **(c)  Total Number of  Shares Purchased  as Part of Publicly  Announced Plans  or Programs** | ** ** | **(d)  Maximum  Number (or  Approximate  Dollar Value) of  Shares that May  be Purchased  Under the Plans or  Programs(1)** | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| April 1, 2008 – April 30, 2008 |       | —                                           |       | $                                             | —     |                                                                                                                             | —     |                                                                                                                                                                | $          | 4,083,870 |   |
| May 1, 2008 – May 31, 2008     |       | 42,351                                           |       | 27.48                                         |       | 42,351                                                                                                                           |       | 2,919,965                                                                                                                                                           |       |
| June 1, 2008 – June 30, 2008   |       | —                                           |       | —                                        |       | —                                                                                                                           |       | 2,919,965                                                                                                                                                           |       |
|                                     |            |                                                  |            |                                               |            |                                                                                                                                  |            |                                                                                                                                                                     |            |  |  |

 

**Item 4.    Submission of Matters to a Vote of SecurityHolders**

 

At our annual meeting ofstockholders held on May 15, 2008, the persons whose names are set forthbelow were elected as directors. The relevant voting information for eachperson is set forth opposite such person’s name:

 

| ** **                   | ** ** | **Number of  Shares Voted  For** | ** ** | **Number of  Shares  Withheld** | ** ** |
|------------------------------|------------|--------------------------------------------|------------|--------------------------------------|------------|
| Martin L. Budd               |       | 12,789,454                                 |       | 640,312                              |       |
|                         |       |                                       |       |                                 |       |
| Thomas V. Cunningham         |       | 13,262,541                                 |       | 167,229                              |       |
| Cornelius B. Prior, Jr. |       | 10,331,500                                 |       | 3,098,270                            |       |
|                         |       |                                       |       |                                 |       |
| Michael T. Prior             |       | 12,961,350                                 |       | 468,420                              |       |
| Charles J. Roesslein         |       | 13,331,367                                 |       | 118,401                              |       |
| Brian A. Schuchman           |       | 11,203,769                                 |       | 2,226,001                            |       |
| Henry U. Wheatley            |       | 13,312,743                                 |       | 117,027                              |       |

 

At the annual meeting ourstockholders also approved the 2008 Equity Incentive Plan. The voting resultsrelated to the proposal were as follows:

 

| **Voted** | ** ** | **Number of Votes** | ** ** |
|-----------|------------|-------------------------------|------------|
| For       |       | 7,885,247                     |       |
| Against   |       | 349,882                       |       |
| Abstain   |       | 16,232                        |       |
| Non-votes |       | 7,079,436                     |       |

 

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Also at the annualmeeting our stockholders ratified the selection of PricewaterhouseCoopers LLP.The voting results related to the proposal were as follows:

 

| **Voted** | ** ** | **Number of Votes** | ** ** |
|-----------|------------|-------------------------------|------------|
| For       |       | 13,493,241                    |       |
| Against   |       | 20,345                        |       |

 

**Item 6.Exhibits**

 

| 3.1    |   | Restated Certificate of Incorporation (incorporated  by reference to Exhibit 4.1 to the Company’s Registration Statement on  Form S-8 (File No. 333-62416) filed June 6, 2001)                                                                                                           |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                              |
| 3.2    |   | Certificate of Amendment to the Restated Certificate  of Incorporation, as filed with the Delaware Secretary of State on  August 14, 2006 (incorporated by reference to Exhibit 3.2 of the  Company’s Quarterly Report on Form 10-Q (File No. 001-12593) filed  on August 14, 2006) |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.1   |   | Atlantic Tele-Network, Inc. 2008 Equity  Incentive Plan (incorporated by reference to Appendix A of the Definitive  Proxy Statement on Schedule 14A (File No. 001-12593) filed on  April 23, 2008).                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.2   |   | Form of Notice of Grant of Restricted Stock and  Restricted Stock Agreement (Non-Employee Directors) (incorporated by  reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K (File  No. 001-12593) filed on May 15, 2008).                                                         |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.3   |   | Form of Notice of Grant of Restricted Stock and  Restricted Stock Agreement (incorporated by reference to Exhibit 10.3 of the  Company’s Current Report on Form 8-K (File No. 001-12593) filed on May  15, 2008).                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.4   |   | Form of Notice of Grant of Incentive Stock  Option and Option Agreement (incorporated by reference to Exhibit 10.4 of the  Company’s Current Report on Form 8-K (File No. 001-12593) filed on May  15, 2008).                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.5   |   | Form of Notice of Grant of Nonqualified Stock  Option and Option Agreement (incorporated by reference to Exhibit 10.5 of the  Company’s Current Report on Form 8-K (File No. 001-12593) filed on May  15, 2008).                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 31.1   |   | Certification of Chief Executive Officer pursuant to  Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 31.2   |   | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 32.1   |   | Certification of Chief Executive Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 32.2   |   | Certification of Chief Financial Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                     |

 

**SIGNATURES**

** **

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                        | Atlantic  Tele-Network, Inc.      |
|-----------------------------|----------------------------------------|
|                        |                                   |
| Date:  August 11, 2008 | /s/  Michael T. Prior                  |
|                        | Michael  T. Prior                      |
|                        | President  and Chief Executive Officer |
|                        |                                   |
| Date:  August 11, 2008 | /s/  Justin D. Benincasa               |
|                        | Justin  D. Benincasa                   |
|                        | Chief  Financial Officer and Treasurer |

 

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